Zayo Bandwidth, a Louisville, Colo.-based regional provider of fiber-based network services, today announced that it has raised $225 million in private equity funding. Backers include Columbia Capital, M/C Venture Partners, Oak Investment Partners, Battery Ventures and Centennial Ventures. The company is co-founded by Dan Caruso and John Scarano, who previously ran ICG Communications and its eventual acquirer Level 3 Communications. So peHUB has 5 Questions for Scarano:
1. Why do telecom and Internet services providers need another company selling bandwidth?
Scarano: This is a consolidation set of activities, where we end up with net fewer companies competing across regions in the country. The equity investment is to acquire and therefore displace competition over time, not add to it.
In the regions where we have already acquired networks – and in those where we’re seeking to acquire – there tends to be one to three players: The incumbent and one or two others. It’s very different than it even was two or three years ago. In the second and third tier markets – where most of the networks we’re acquiring lie – I think a casual review would show that competition is low.
2. Was it fait accompli that Columbia Capital and M/C Venture Partners would be involved, given that they funded ICG Communications?
Scarano: It was a mutual decision. Dan Caruso and I spent time with multiple private equity firms, and ended up concluding that this group – including Columbia and M/C – were the best option.
3. Why raise only private equity, instead of a combination of equity and debt?
Scarano: We actually do plan to bring in additional leverage in the form of traditional debt. The benefit of leading with fully-funded private equity commitments is that it allows us to be very decisive in our acquisition negotiations. It also lets us eliminate traditional contingencies like financing contingencies, and are able to win quickly as a result.
4. You’ve already announced four deals. At what point do you need to raise additional private equity, if at all?
Scarano: Our current trajectory and private equity funding would enable us to close a total of six to eight transactions, and possibly as many as 10. We also might have much more dry powder, depending on how successful our debt-raising activities are. If we feel the need, we would certainly contemplate raising additional private equity.
5. Who will be taking board seats, as part of the financing?
Scarano: All the firms have representation on the board, although three have voting rights and two do not… From M/C we have Gillis Cashman and Rob Savignol. From Columbia we have John Siegel and Jim Fleming. From Oak we have Tony Downer. From Centennial will be Rand Lewis, and from Battery Rick Frisbie.