As we sit on the edge of our seats waiting for a deal to be announced that would change the fate of Zayo as we know it. I thought it would be fun to sit back and take a look at what the future holds from a different perspective instead.
Before we get started, let’s start with a brief overview about Zayo. (In Slides)
If you’ve been following the Zayo story for a while, you may have hit a point where you were confused, and may still be confused. I know I have been at times. Just a couple months back, Cowen Analyst, Colby Synesael asked the following on the Zayo Q2-FY2019 Earnings Call: “I apologize for being so blunt, but are you not splitting the company now. I just want to be perfectly clear.” and “And then, also you're having an Analyst Day in March. I think it's in 14th. It seems like a lot of these things are still being figured out. Why haven't Analysts Day before potentially resolving all these things to month or two later be explaining to investors, I think they're different than what you just said your Analyst Day. Thanks.”
A month after that earnings call, Zayo canceled its planned Analyst Day.
This back and forth has been going on for some time now. Just take a look through the sample headlines below.
The frontrunner for Zayo is a private-equity consortium that includes Digital Colony Partners, EQT and Stonepeak Infrastructure Partners. These are the heavy hitters in the world of internet infrastructure PE.
Digital Colony is a venture between Marc Ganzi’s Digital Bridge and Tom Barrack’s Colony Capital. EQT has been involved in a number of infrastructure plays, such as Segra, which is the combination of Lumos and Spirit, Sweden-based IP-Only, DeltaFiber NL, and many more. Stonepeak has invested in Cologix, euNetworks, Extenet Systems, Vertical Bridge, and many more.
Digital Bridge holds a number of companies in the infrastructure space, such as Mexico Tower Partners, Andean Tower Partners, Vertical Bridge, Extenet Systems, Data Bank, and Vantage Data Centers.
All of these firms have deep market expertise, and are well established.
So what happens if this group makes a deal happen? What potential do you see?
On Zayo’s last earnings call, they discussed their intention of zColo becoming more independent. Dan Caruso said “We need to expand the scope and independence zColo”.
Pay attention here:
Position zColo to operate as more stand-alone colo business
Move Cloud Infrastructure into zColo
Move Network Services that are associated with colo customers into zColo
My takeaway from this slide is that they have already been thinking about how to divest of the colo business.
zColo has 51 facilities in over 30 markets.
Dallas, Cleveland, Chicago, Minneapolis, Austin, Boston, Atlanta, New York Metro, Northern Virginia, Nashville, Memphis, Philadelphia, Miami, San Diego, Denver, Irvine, Santa Clara, Seattle, Phoenix, Las Vegas, Toronto, Montreal, Brussels, Paris, Montpelier, Toulouse, Dusseldorf, Amsterdam, and London.
It just so happens that Digital Bridge has not one, but two data center companies sitting in its portfolio.
Vantage is a wholesale/hyperscale play, rather than retail colocation like its sister company, Data Bank.
Data Bank has 15 data centers (via databank.com) but I think that number is closer to 20 now with recent acquisitions.
Data Center Markets Unique to Data Bank
Pittsburgh, Kansas City, Salt Lake City, Baltimore.
Data Center Markets Unique to zColo
Chicago, Austin, Boston, New York Metro, Northern Virginia, Nashville, Memphis, Philadelphia, Miami, San Diego, Denver, Irvine, Santa Clara, Seattle, Phoenix, Las Vegas, Toronto, Montreal, Brussels, Paris, Montpelier, Toulouse, Dusseldorf, Amsterdam, and London
If you factor in the cloud infrastructure and network services that was specifically mentioned in the last earnings presentation from Zayo, which both aligns to and compliments DataBank’s Managed Services, a data center portfolio with little overlap, and you get a strong retail colocation footprint that builds on current markets, and adds over 20 new markets in North America and Europe.
Once you remove the zColo asset, you are left with Allstream and Zayo’s Core Network Services Business.
The core business is the real pot of gold here. Allstream will need to be disposed of.
The question is — How will this all go down?