Zayo Group Holdings agreed to acquire Allstream,a wholly owned subsidiary of MTS, for CAD $465 million, representing a pre-synergized adjusted EBITDA multiple of less than five times. Allstream has approximately CAD $600M revenue and Adjusted EBITDA (excluding restructuring charges) of approximately CAD $100M.
Allstream is a Canadian leader in IP communications and the only national provider that works exclusively with business customers. Zayo said the acquisition will add substantial fiber and colocation assets across Canada to its own core network Communications Infrastructure business. Allstream has over 9,000 route kilometers of metro fiber network concentrated in Canada’s top five metropolitan markets, (Toronto, Montreal, Vancouver, Ottawa, and Calgary) that connect to approximately 3,300 on-net buildings. In addition, Allstream has an approximate 20,000 route kilometer long-haul fiber network connecting all major Canadian markets and 10 U.S. network access points. In addition, Allstream operates colocation space in Toronto, Montreal, and Vancouver.
“Within today’s Allstream is a robust collection of fiber networks, which are enormously valuable to both Allstream and Zayo customers,” explained Dan Caruso, chairman and CEO of Zayo. “We will unleash the full potential of these assets by combining them with Zayo’s network and focus on providing high-quality and low-cost bandwidth to help fuel the growth of Canada’s economy.”
Zayo estimates that approximately half of Allstream’s revenue is a direct fit with Zayo’s existing core business. Zayo’s investment thesis is to separate this business from other parts of Allstream, and integrate it into Zayo, using the same approach as is currently in place for Zayo UK and Zayo France. This plan includes retaining a strong Canadian brand and presence. The segmentation of the Communication Infrastructure portion of Allstream’s business (“Zayo Canada”) and follow-on reporting into Zayo’s core business segments (Dark Fiber Solutions, Colocation & Cloud Infrastructure, and Network Connectivity) will take multiple quarters to complete.
“As we stand up Zayo Canada, we are targeting CAD $300M of revenue, a >40 percent EBITDA margin, and a high single digit growth rate,” said Karl Maier, president of Zayo International. “If we achieve this outcome and apply an EBITDA multiple similar to Zayo, the value of Zayo Canada will be substantial.”
The other half of Allstream’s business will be organized into two additional segments: Voice and Universal Communications (approximately one third of Allstream’s revenue), and Small Business (primarily enterprise voice). Each of these will be separated into standalone business units in parallel with the formation of Zayo Canada.
MTS is Manitoba’s leading communications company and is wholly owned by Manitoba Telecom Services Inc. (TSX: MBT).
