Cloud Services

Zayo Splashes $675M on Latisys Data Centers

Zayo is showing no sign of slowing its growth-through-acquisition strategy in 2015, announcing Wednesday that it is to acquire the operating units of colocation and IaaS (infrastructure as a service) specialist Latisys Holdings for $675 million.

The news comes only days after Zayo Group Inc. (NYSE: ZAYO) announced that it had completed the $52 million acquisition of IdeaTek, a deal that adds 1,800 route miles of fiber network in Kansas to Zayo's existing assets of more than 81,500 route miles across the US and Europe.

Latisys has eight data centers in five markets -- Northern Virginia (Ashburn), Chicago (Oak Brook), Denver, Orange County (Irvine) and London -- from which it provides about 1,100 medium and large enterprise customers with compute, storage and connectivity services. The company noted in a recent press release that it has invested more than $150 million during the past five years to "extend its hybrid cloud hosting and data center platform to respond to increasing demand for enterprise-grade outsourced IT infrastructure services."

Latisys has built its business by offering tailored, managed cloud and connectivity services and generated about $88 million in revenues in 2013. It has raised more than $300 million from private equity firms Great Hill Partners and Catalyst Investors as well as other financial institutions.

Zayo, which runs an extensive fiber infrastructure and data center operations, says it owns metro fiber assets in all of the Latisys markets and is already connected to the data center facilities it is acquiring. The acquisition will expand Zayo's data center portfolio to 45 facilities in total.

The acquisition is being funded by Zayo's existing debt facilities and is expected to close during the first quarter.

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Zayo, which went public in mid-October 2014, has been expanding rapidly during the past few years, spending about $3.7 billion on a series of acquisitions in North America and Europe: The Latisys deal will take its shopping spree over the $4 billion mark. (See Zayo Zooms Out of the IPO Gate and How Zayo Spent $3.7B on Acquisitions.)

Investors seem happy enough with Zayo's expansion strategy: The operator's share price increased by 1.2% Wednesday following news of the Latisys deal, closing the day at $30.22, a hefty 59% gain from Zayo's IPO share price of $19.

In its first public earnings report, for the three months ending September 30, 2014, Zayo announced revenues of $320.6 million, up by 20% from a year earlier, and an operating loss of $39.5 million.

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

James_B_Crawshaw 1/15/2015 | 4:04:19 PM
Re: Extraordinary M&A run.... Er, they did make an operating profit (EBIT) in the year ending June 2014 but it wasn't enough to cover their huge interest costs. However Free Cash Flow (after interest) was positive, just as it had been in the prior year. 

You're right about the M&A run though. $4.5bn spent since 2010 is fairly punchy for a company with a market cap of just $7.2bn. 
[email protected] 1/15/2015 | 7:26:37 AM
Extraordinary M&A run.... AMazing industry consolidation by just one company -- but how long will investors bre preared to wait before seeing some operating profits? 
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