Allstream Acquisition FAQ
What is the scope of this transaction with Allstream?
Zayo is acquiring Allstream for $465M CAD, which represents a current EBITDA multiple of less than five times. The acquisition adds more than 18,000 route miles to Zayo’s fiber network, including 12,500 miles of long-haul fiber connecting all major Canadian markets and 5,500 route miles of dense metro fiber network connecting approximately 3,300 on-net buildings concentrated in Canada’s top five metropolitan markets.
What’s the rationale for the acquisition?
The transaction will establish Zayo as the only Pan-U.S./Canada Communications Infrastructure provider and serves as an excellent entry point into the Canadian market. It further solidifies Zayo’s position as a global leader in Communications Infrastructure, providing customers with significant reach into international markets.
Zayo’s global Communications Infrastructure now encompasses 110,000 route miles of high-capacity fiber, 53 data centers and connectivity to approximately 350 markets across North America and Europe. Existing and new customers have immediate access to this expansive, high-performance infrastructure.
This is the second international transaction that Zayo has closed in the past few weeks. Does this signal a strategic shift for Zayo?
It’s not a strategic shift but continued execution of our strategy. We’ve proven out a model of acquiring infrastructure assets and leveraging them to deliver high-performance Communications Infrastructure to customers. We’ve done this successfully in the U.S. and Europe and are extending this strategy to Canada.
Allstream provides retail services to SMBs, which isn’t consistent with Zayo’s business model. What is the plan for these customers?
The plan is to reorganize the Allstream business and assets into two distinct business units to meet the needs of both SMB, large enterprise, carrier and government customers. The first, Zayo Canada, will own and operate the Canadian fiber and data center assets and its products and customers will align with those of Zayo. The second business unit will include Allstream’s voice, unified communications and small enterprise businesses and will retain the Allstream brand. This bifurcated structure will enable both business units to better focus on their different types of customers and to grow and innovate.
Should Allstream customers expect changes?
We don’t expect current Allstream customers to experience much in the way of change in the immediate term. Over time and following the split into the two business units we expect all of the enterprise, carrier, government and SMB customers to receive even higher levels of service as a result of the focus having two business units will bring. There will be no immediate changes to services, account relationships, contracts or billing.
How will you differentiate yourselves from other Canadian providers?
We’ll differentiate ourselves in by being a more focused provider of Communications Infrastructure with extensive international connectivity and a broad range of solutions. We believe our growing global network and our unique position as the only Pan-U.S./Canadian infrastructure provider (with owned assets) will deliver differentiated value. Our Tranzact online platform is another way we will set ourselves apart. It provides customers with the ability to price, shop and order our infrastructure as well as manage existing solutions. Once we have updated Tranzact with our new global network capabilities, customers will not have to make an inquiry or wait for a call from us. They’ll immediately be able to go online, explore our expanded infrastructure, receive a quote and place an order. Of course, our account representatives and customer care staff are always available to answer questions and provide consultation.
Will the Allstream management team stay in place?
Zayo has selected Michael Strople, President of Allstream, to serve as Managing Director over both the Canadian business units. He will report to Karl Maier, President of Zayo International. They will lead the initiative to restructure into two business units, with each business unit focused on providing a great overall experience for customers and strong value creation for investors.
Are there more transactions in the works for Zayo?
We continually identify and evaluate opportunities that are aligned with our Communications Infrastructure strategy and can generate value for customers and shareholders.