One’s pain is another’s gain. DigitalBridge has been playing in the long-haul and enterprise fiber market for a while now via its stake in Zayo but has noticeably sat on the sidelines while other investment firms have swarmed the residential fiber space. CEO Marc Ganzi hinted during Q1 2023 earnings that could soon change now that growing pains are forcing fiber valuations lower.
Ganzi said during the call DigitalBridge didn’t join the residential fiber feeding frenzy because it was unwilling to spend “20 times EBITDA to buy a business that has month-to-month, 30-day cash flows.” And Ganzi noted he has long predicted that repricing was imminent, as happened following the CLEC boom in the early 2000s.
Indeed, Ganzi’s thesis has begun to bear out. He pointed to “a bunch of bankruptcies in Europe” and said “there’s going to be some restructurings in the U.S. and we want to play in that.”
In January, Liberty Networks Germany, a joint venture between Liberty Global and InfraVia Capital Partners, announced it was exiting the market little more than a year after the company was formed in late 2021, citing unfavorable macroeconomic conditions. It was not immediately clear what other companies Ganzi might be referring to.
“Now as we move into this cycle and these assets are priced from the high teens down into the low teens, some of these pricing in the single-digit multiple range, we now see a value opportunity,” he stated. “I don't have a fundamental problem with cable or residential fiber. I just didn't like the valuations they were trading at in '21 and '22. Now that those valuations have come into the right range, you could put the right capital structure on those businesses and you can be really successful. So, we're excited.”
Uniti
In October 2021, rumors swirled that DigitalBridge-backed Zayo was in talks to acquire Uniti for around $15 per share. However, the companies reportedly came to impasse over price, with Uniti believing Zayo’s proposal to be too low.
Neither DigitalBridge nor Uniti suggested they might revive deal talks. But Uniti CFO Paul Bullington said during Q1 earnings that “we're going to have the opportunity to begin engaging materially, frankly, as a buyer or as a seller” in the M&A market goig forward. And in terms of its position on the latter front, he noted that for “quality assets like ours” valuation multiples “remain elevated.”
Financials
DigitalBridge’s consolidated revenue rose year on year in Q1 from $232.8 million to $250.1 million. However, it posted a net loss attributable to shareholders of $212 million.
Uniti likewise grew consolidated revenue from $278 million to $289.8 million year on year, but posted a net loss of $19.2 million.