Investors Target Fiber-Rich Telcom Market

  • CoBank Knowledge Exchange

GREENWOOD VILLAGE, CO — Merger and acquisition activity in the telecom market has increased substantially in recent years, driven by the explosion in cloud computing, consumer demand for data, and new technologies such as 5G wireless networks and autonomous vehicles. Most investment deals completed to date have included mid-sized fiber transport companies, which offer investors broad exposure to the enterprise and wholesale fiber markets.

Now that most of the available mid-sized companies have been acquired, investors are turning their attention to regional and rural operators who have made strategic investments in fiber, according to a new report from CoBank’s Knowledge Exchange division. The report explores network owners motivations for selling, the various investor types in the market, and lessons learned from executives who’ve gone through an acquisition.

“The money flowing into the U.S. telecom market over the last few years has helped drive up telecom valuations, particularly as buyers look for growth opportunities, scale, and revenue diversification,” said Jeff Johnston, lead analyst for communications with CoBank’s Knowledge Exchange division. “Valuations could still climb, creating a sellers’ market for the foreseeable future.”

Infrastructure Funds

Recently, the most interested and active buyers are infrastructure funds, private equity sponsors and large strategic buyers. Given the increasing demands on telecom networks, fiber has proven to be a good investment. Infrastructure funds typically have longer-term investment time horizons and lower return requirements compared to some private equity firms. Strategic buyers are heavily influenced by synergies such as taking redundant costs out of a business, gaining scale, and offering more services.

“For operators, deciding which type of buyer to partner with depends on their desired outcome,” said Johnston. “Strategic buyers are most appropriate for operators who want to cash out and leave the business. Operators looking to raise equity capital should explore partnerships with either infrastructure or private equity sponsors, depending on how much control they wish to retain.”

Infrastructure funds are good for owners who are looking to raise capital, but still want some level of input over strategy and the day-to-day operations. Private equity sponsors usually have operational experience in the industries they invest in. These funds are good for owners who are looking to raise capital and want to leverage the expertise and connections private equity managers can offer.

 

About CoBank

CoBank is a $136 billion cooperative bank serving vital industries across rural America. The bank provides loans, leases, export financing and other financial services to agribusinesses and rural power, water and communications providers in all 50 states. The bank also provides wholesale loans and other financial services to affiliated Farm Credit associations serving more than 70,000 farmers, ranchers and other rural borrowers in 23 states around the country. CoBank is a member of the Farm Credit System, a nationwide network of banks and retail lending associations chartered to support the borrowing needs of U.S. agriculture, rural infrastructure and rural communities. Headquartered outside Denver, Colorado, CoBank serves customers from regional banking centers across the U.S. and also maintains an international representative office in Singapore.

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