The news today that Canadian telecom and broadband provider BCE has completed its acquisition of Ziply Fiber is one of the first examples of a private equity firm cashing out on a telecom and broadband investment.
Private equity investors have been pouring money into broadband and telecom in recent years, eyeing fiber broadband opportunities. These firms don’t aim to hold these properties for more than several years. Their goal is to build value by investing in network infrastructure and then selling the properties at a profit.
The private equity behind Ziply Fiber came from investors at WaveDivision Capital and Searchlight Capital, who bought Frontier operations in several northwestern states in 2019 in a deal valued at $1.3 billion. Those properties were then renamed.
The sale of Ziply to BCE’s Bell Canada subsidiary is valued at $3.65 billion (U.S. dollars).
We don’t know how much money WaveDivision and Searchlight invested in Ziply. We do know they expanded broadband and made several smaller acquisitions. Nevertheless, it appears that the firms are making a substantial profit on the sale after holding the company for just six years.
What about other private equity firms that are still holding investments in telecom and broadband?
Another exit route is to do an initial public offering — an option we could see some of the firms taking. But if the Ziply/BCE deal is any indication, perhaps selling the business to another provider is a more likely scenario.
The Ziply/BCE deal may not be typical, though. There are only so many non-U.S. companies that regulators would allow to purchase some of our critical infrastructure.
Which U.S. providers might be interested in picking up properties from private equity investors?
The answer may lie in another important factor driving the telecom and broadband industry today: the recognition that mobile plus home internet is the new killer bundle. None of the big three mobile providers can offer that bundle nationwide, but they’re all taking steps to expand the areas where they can provide both services.
The question is how much money mobile providers have available to invest in home broadband assets. The providers will need to balance that with their investments on the mobile side.
Perhaps we’ll get more answers over the next year or two as more private equity firms seek buyers for their telecom and broadband holdings.
Additional information about the Ziply/BCE deal can be found in this press release.
