Press Release

November 23, 2015  — BOULDER, Colo.–(BUSINESS WIRE)–Zayo Group Holdings, Inc. (“Zayo”) (NYSE: ZAYO), a leading provider of Communications Infrastructure services, today announced it has entered into a definitive agreement to acquire Allstream, Inc. (“Allstream”), which offers bandwidth and telecom services to business and public sector customers across Canada. Allstream is a wholly owned subsidiary of MTS, Inc. (“MTS”), Canada’s fourth largest provider of telecommunications services. The purchase price is CAD $465 million, representing a pre-synergized adjusted EBITDA multiple of less than five times. Allstream has approximately CAD $600M revenue and Adjusted EBITDA (excluding restructuring charges) of approximately CAD $100M.

Zayo is primarily interested in adding Allstream’s substantial fiber and colocation assets to Zayo’s core network Communications Infrastructure business. Allstream has over 9,000 route kilometers of metro fiber network concentrated in Canada’s top five metropolitan markets, (Toronto, Montreal, Vancouver, Ottawa, and Calgary) that connect to approximately 3,300 on-net buildings. In addition, Allstream has an approximate 20,000 route kilometer long-haul fiber network connecting all major Canadian markets and 10 U.S. network access points. In addition, Allstream operates colocation space in Toronto, Montreal, and Vancouver.

“Within today’s Allstream is a robust collection of fiber networks, which are enormously valuable to both Allstream and Zayo customers,” explained Dan Caruso, chairman and CEO of Zayo. “We will unleash the full potential of these assets by combining them with Zayo’s network and focus on providing high-quality and low-cost bandwidth to help fuel the growth of Canada’s economy.”

Zayo estimates that approximately half of Allstream’s revenue is a direct fit with Zayo’s existing core business. Zayo’s investment thesis is to separate this business from other parts of Allstream, and integrate it into Zayo, using the same approach as is currently in place for Zayo UK and Zayo France. This plan includes retaining a strong Canadian brand and presence. The segmentation of the Communication Infrastructure portion of Allstream’s business (“Zayo Canada”) and follow-on reporting into Zayo’s core business segments (Dark Fiber Solutions, Colocation & Cloud Infrastructure, and Network Connectivity) will take multiple quarters to complete.

“As we stand up Zayo Canada, we are targeting CAD $300M of revenue, a >40 percent EBITDA margin, and a high single digit growth rate,” said Karl Maier, president of Zayo International. “If we achieve this outcome and apply an EBITDA multiple similar to Zayo, the value of Zayo Canada will be substantial.”

Significant effort is required to establish the Zayo Canada segment, and the revenue, EBITDA margin, and growth rate targets for Zayo Canada are aspirational. Zayo’s Tranzact platform will be instrumental in the creation and success of Zayo Canada.

“As we roll Allstream’s Communications Infrastructure business into Tranzact, both Zayo and Allstream customers will have easy and seamless access to Zayo’s expansive infrastructure in North America and Europe,” said Matt Erickson, co-COO of Zayo.

The other half of Allstream’s business will be organized into two additional segments: Voice and Universal Communications (approximately one-third of Allstream’s revenue), and Small Business (primarily enterprise voice). Each of these will be separated into standalone business units in parallel with the formation of Zayo Canada.

“We believe these other businesses provide valuable and important services to their customers, and the business unit focus will enable them to grow and innovate,” added Caruso. “We’ve successfully done this on prior acquisitions. The key is strong and focused leadership, appropriate management incentives, and stand-alone financial statements that allow transparency into performance.”

As part of the transaction, MTS has agreed to retain the pension obligation, and related pension plan assets, of retirees and other former employees of Allstream and has also agreed to reimburse Allstream for certain solvency funding payments related to the pension obligations of current Allstream employees. The all-cash transaction is expected to be funded with existing cash and revolving credit facility capacity and close in the first calendar year quarter of 2016, subject to customary regulatory approvals and closing conditions. RBC Capital Markets served as exclusive financial advisor and Gibson Dunn & Crutcher LLP and Borden Ladner Gervais LLP served as legal advisors to Zayo on the transaction.

Zayo will host an investor call on Tuesday, November 24 at 10 a.m. ET. Meeting information will be available at:

For more information about Zayo, please visit

Press Release

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