Author: Mei Ling Tan

Late last week, an infrastructure M&A rumor managed to slip past my nets. The pan-European network and cloud infrastructure operator Interoute was revealed have brought in Credit Suisse and Evercore to help evaluate a sale of the company.

Interoute is majority (70%) owned by the Sandoz family with Aleph Capital and Crestview Partners holding the remainder. The company’s network was built off of assets from the dot-com crash via a combination of organic and inorganic growth, with the most recent inorganic moves being the acquisitions of Vtesse in 2014 and EasyNet in 2015.

In the first half of 2017, Interoute posted €354 million ($416.9 million) in revenue and €79.6 million in adjusted ebitda while spending €36.1 million in capex. As the EasyNet integration winds down, the company’s ebitda margins have risen up toward the 22% mark. The rumors indicate they’d be looking for a multiple of somewhere in the 7-10x ebitda range, which puts the value of any potential deal at somewhere in the $1.5 billion to $2 billion range.

So the question is, who might step up to the plate to buy Interoute? There are possible strategic buyers from both the US and Europe as well as some interesting private equity possibilities. Here are thoughts on a few candidates in no particular order:

• Level 3 – A few years ago, Level 3 would have been the first answer to come to mind. The synergies to be derived are obvious, and the scale would help the company’s enterprise business on the continent a great deal. But the timing isn’t perfect given the impending tasks of the CenturyLink integration, so this possibility seems a bit less likely than it might have in the past. It’s still quite possible though.
• Zayo – They could be a very strong candidate. After entering the Euro market a few years ago with the acquisitions of Geo, Neo, and Viatel, Zayo has a pretty good starter set in western Europe. They’ve been uncharacteristically quiet since then, but pan-European fiber and data centre assets like Interoute don’t grow on trees. Zayo won’t sit out the chance to bid and they won’t be shy.
• Teliasonera – the Scandinavian-based giant has been growing its international network footprint steadily and almost entirely organically over the years. But this opportunity to add pan-European enterprise and wholesale depth may not be something they can pass up.
• Colt – For a decade I saw Colt as a likely target of consolidation, but ever since Fidelity took them private they’ve been looking like they might be ready to sit on the other side of the table. A combination with Interoute would have significant synergies and few downsides when it comes to pure numbers.
• euNetworks – While the company probably isn’t large enough to do it on its own, its private equity owners are completely capable of making a bigger move if the opportunity is sufficiently attractive. euNetworks metro depth in the UK and Germany would help raise margins on Interoute’s revenue.
• Telxius – This is a bit of a longshot, but when Telefonica split off its infrastructure division and sold off a piece of it to KKR, they were doing so to help with the company’s debt issues. But as with Windstream’s spinoff of what is now Uniti Group, the resulting company could become a consolidator in its own right with private equity sitting in the driver’s seat.
• EQT Infrastructure – These guys are perhaps the most aggressive private equity guys in the market over in Europe, and I can easily see them taking the opportunity to take Interoute off of the the Sandoz family’s hands.
• Other private equity – The list of names is quite long
• The billionaires – One can never count out personalities like Carlos Slim, Patrick Drahi, John Malone or even Naguib Sawiris, although none seem to jump out at me in this case.