VCIR – Zayo Group

Zayo Group is a regional provider of telecom services, bandwidth, voice and managed services. Dan Caruso is the CEO and the management team appears to be really seasoned coming from ICG, L3, WorldCom, MFS, etc.

They have $225M committed and have spent $140M of that. In their first year of operations they estimate revenues to be approximately $160M.

Their strategy is to buy companies that installed fiber networks during the bubble (about 80). A lot of those have been purchased by the big guys (strategics) but not all. The companies they buy are generally healthy now but capital constrained. The company thesis is that the glut of bandwidth will soon be coming to an end. As a rollup play they plan to buy up properties as fast as possible. They believe they can beat the big guys simply because the big guys are not the healthy.

Here is what I think. I think this is a great idea. They are looking for another $125M equity. They are concentrating on integration, one and capture of additional properties second. This is a deal for the large telecom centric funds but I think this one is going to be huge. As long as they run the resulting company free cash flow positive they will be a takeout down the road when the strategics get healthier and need to grow again.