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Analysis: Lightower/Sidera Merger

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Over the holidays, it was announced that Lightower Fiber Networks and Sidera Networks are to merge. Here’s some more on the deal based (in large part) on a briefing from Sidera CEO Mike Sicoli …

* The new company – name TBD and valued at $2 billion – is being created by Berkshire Partners acquiring Lightower and Sidera, with some existing investors on both sides staying on board.  Berkshire is a private equity company. It is also an investor in data centre provider Telx, as is ABRY Partners, a Sidera investor that is one of those remaining.

* Both companies have made acquisitions in the past. Significantly, much of Lightower’s low-latency network comes from its 2010 purchase of Lexent Metro Connect. Sicoli says the companies have discussed merging at various times over the past two years, and that now “everything lined up” including keeping with the aspirations of various investors.

* The combined company will have 20,000 route miles and provide access to more than 6,000 locations. Currently, Sidera has 13,500 route miles and Lightower has 6,600.

* Regulatory approval is required from the Federal Trade Commission and the Federal Communications Commission, as well as state and local agencies. Until the transaction closes – sometime in the second quarter is the target – it is business as usual for both companies.

* Sidera is an existing customer of Lightower, which mostly owns its own fibre.  Sidera owns some and leases some. For its part, Sidera’s network underpins much of NYSE Euronext’s SFTI network in the NY Metro area.

* There is overlap in the low-latency offerings from Lightower and Sidera, but this could be positive in terms of offering diversity of paths, which is increasingly important to customers.

* That said, network consolidation over time will lead to some cost savings, as will elimination of duplicate staff and offices. Cost saving are likely to be in line with similar past mergers of telecom companies, says Sicoli.

* Financial services is the largest vertical for Sidera. As a combined company, that should still be the case, says Sicoli.

* Apart from Lightower’s Rob Shanahan becoming CEO of the merged company, other key executive positions will not be determined until just before, or post, merger. Sicoli says he has not determined whether he will join the new company.

My Take:

“Telecom is a scale business,” says Sicoli, and that’s the main driver for this merger – which is bigger than just financial services. Other consolidation is happening, such as that led by Zayo. And more will come.

This should mean better service for financial markets firms, and with a fair amount of competition remaining, pricing will remain keen. Customers are continuously evaluating service levels, looking for cheaper and faster routes, keeping contractual leases short, so the merging companies need to make sure that operationally everything is smooth along the way, or customers will jump.

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