Why Zayo is Buying Latisys for $675 Million?

Mike Allen
January 14, 2015

"Zayo Group, Inc. says that it has reached a deal to buy data center and cloud infrastructure service provider Latisys Holdings, LLC. for $675 million. The acquisition increases Zayo's zColo data center footprint to 45 in the United States, France, and United Kingdom. The deal is largely expected to close in the first quarter of 2015 with formal acceptance from both parties and creditors. The acquisition will be and will be financed through senior unsecured debt.

Why is Zayo Buying Latisys?

Data Center & Cloud Industry Consolidation
The acquisition of Latisys makes perfect sense at $675 million and here is why. The data center and cloud infrastructure industry is exploding and the potential for growth is enormous. It is evident in the recent wave of mergers and acquisitions since 2011 - Savvis, Terremark, Softlayer, and ViaWest. The price tags for these acquisitions averaged $1.8 billion.

With an acquisition cost of $675 million, Latisys seems like a pretty good deal especially based on their latest earnings. Latisys generated Adjusted EBITDA of approximately $11.0 million for the three months ended September 2014 and approximately $4.2 million for the month of November 2014.

Fiber & Bandwidth to Latisys Customers
Zayo is in the business of providing fiber-optic network and bandwidth. Latisys has a presence in each of the markets where Zayo owns and operates their extensive metropolitan networks. This will allow Zayo to sell their fiber and bandwidth services to Latisys' existing customers. There is a huge opportunity that exists for Zayo with the convergence of data storage, processing, and transport. This is the future.

Expanding zColo Data Center Footprint
By acquiring Latisys, Zayo will be able to expand their colocation data center offering from 40 to 45 facilities under the zColo brand. Latisys has a data center footprint that includes Ashburn, Chicago, Irvine, Centennial, and Englewood.

The Latisys Centennial and Englewood locations, also known as DEN1 and DEN2, represent a market that Zayo does not have a presence in. The Englewood DEN2 data center was recently completed in 2012 and is a Tier III certified facility with 87,000 square feet of floor space.

Cloud Infrastructure Opportunity
If there is one thing that Zayo Group is missing it is a cloud infrastructure offering. Zayo currently offers wide range of network services including: dark fiber, mobile infrastructure, wavelengths, ethernet, IP services, SONET, and data center colocation. The cloud is really the missing link. Everything is moving to the cloud. The Latisys acquisition allows Zayo to tip toe into the cloud market and supply the all important connectivity and transport services. Zayo will now be able to offer public, private, and hybrid cloud with managed services.

Past Mergers & Acquisitions
Founded in 2007, Zayo focused on fulfilling the fiber-optic network needs of businesses and governments. The company was considered a ""wholesale service specialist"" in the telecommunications industry. That quickly changed as the company began making a series of aggressive acquisitions.

From July of 2007 to May of 2014, Zayo had completed 30 acquisitions with a price tag of $3.1 billion dollars - with meaningful acquisitions ranging from a mere $1,889 dollars to $2.2 billion for AboveNet. Acquisitions include everything from fiber networks to voice and colocation companies. Here is a list of their recent acquisitions before the Latisys announcement.

Summary

Zayo is poised for the future with a strong fiber-optic network, large data center presence, and new cloud infrastructure offering. The only hurdle may be the integration of all of the companies it acquires."



    Mike Allen

    "Zayo Group, Inc. says that it has reached a deal to buy data center and cloud infrastructure service provider Latisys Holdings, LLC. for $675 million. The acquisition increases Zayo's zColo data center footprint to 45 in the United States, France, and United Kingdom. The deal is largely expected to close ...