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Wholesale services specialist Zayo files its IPO documents, but warns that profits are still some way off.

Zayo Files for IPO

Ray Le Maistre
7/4/2014
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Heavily-indebted wholesale services and dark fiber specialist Zayo has filed for an IPO valued initially at a token $100 million.

The network operator, which has been on an acquisition spree in North America and Europe during the past two years (including the purchase of an Atlanta data center for $52.5 million this week), has not set a price range for its stock or stated a timeline for joining the public markets. (See Zayo Group Acquires AtlantaNAP Data Center and Zayo Buys UK Fiber Network Operator.)

Zayo Group Inc. , which sells fiber, Ethernet and IP services to telcos, mobile operators, web services firms, large enterprises and government agencies, generated revenues of $826.5 million in the nine months to the end of March 2014, up 11.3% from the same period a year earlier, and recorded an operating income of $69.5 million.

However, its large debt pile of $2.99 billion attracts significant interest payments, which pushed Zayo into a net loss of $105.6 million in the nine months to the end of March. The company notes that it expects to report losses for several years to come, and that it may use some of the proceeds of the IPO to pay down some of its debt.

Zayo's pitch, though, is all about long-term growth fueled by the demand for network capacity driven by video and data traffic. It operates a network that runs over 77,000 route miles (with an average of 74 fibers per route), serving 297 markets in the US and Europe. It is connected to 14,490 buildings, including 3,838 cellular towers and 527 data centers.

It has built its business through M&A activity -- 30 acquisitions since 2007 that have cost a total of $3.7 billion -- and investment: In the period from July 1, 2012 through March 31, 2014, Zayo invested $598 million of capex on its network and facilities. In its IPO filing, Zayo notes that it intends to acquire more complementary businesses and further invest in its network. (See AboveNet Finds $2.2B Buyer in Zayo Group and Zayo Completes 360 Deal.)

Zayo is currently owned by a consortium of private equity firms, including Battery Ventures , Columbia Capital , Charlesbank Capital Partners, GTCR, M/C Venture Partners , and Oak Investment Partners .

— Ray Le Maistre, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, Editor-in-Chief, Light Reading

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danielcawrey
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danielcawrey,
User Rank: Light Sabre
7/7/2014 | 4:54:24 PM
Re: A lot of debt to pare down
Seems like this IPO is more an avenue for Zayo to remain solvent rather than to expand operations. 

I get the game in M&A on a bet for multimedia traffic. But it seems to me this business strategy is a huge risk for all parties involved, including the company's future investors. 
Joe Stanganelli
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Joe Stanganelli,
User Rank: Light Sabre
7/5/2014 | 2:28:24 AM
I'm convinced.
> "The company notes that it expects to report losses for several years to come, and that it may use some of the proceeds of the IPO to pay down some of its debt."

Well, shoot, sign me up!
Ray@LR
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Ray@LR,
User Rank: Blogger
7/4/2014 | 11:35:10 AM
A lot of debt to pare down
I'm sure Zayo will be aiming to raise much more than $100 million when it reveals its full details -- that $3 billion debt pile needs some attention.

 

In this fiscal year it has already paid out more than $100 million in interest payments so it needs a decent slice of cash to make some inroads, I'd say. 
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