Sidera CEO sees more fiber network consolidation ahead

The $2 billion merger agreement announced last week that will combine Lightower Networks and Sidera Networks may be the largest consolidation of fiber-optic network services providers in recent memory, but it certainly won’t be the last, Sidera CEO Mike Sicoli believes.

Both Sidera and Lightower reached their current size via a series of acquisitions (see, for example "Lightower Fiber Networks to acquire Lexent Metro Connect" and "Sidera Networks to acquire Long Island Fiber Exchange"). With asset combination part of their companies' respective DNAs, Sicoli revealed in an interview today that he and Lightower CEO Rob Shanahan had discussed the potential benefits of joining forces “for a couple of years.” Meanwhile, investment firm Berkshire Partners, which will write the check for most of the $2 billion that will support the merger (Berkshire will buy both companies, then put them together), had been looking to buy into the fiber network services space for a while, Sicoli said.

“It just sort of happened that existing Lightower shareholders were ready to transact, Berkshire was ready to pull the trigger, Sidera was ready to throw in its piece, and it all came together,” Sicoli said in describing the timing of the current deal.

The combined assets will create a larger footprint (the only significant network overlap is in Manhattan, Sicoli asserted) that will enable the new company to offer more services, faster, to existing and new customers. “It’s the network effect of having a bigger network. It gives you a chance to deepen customer relationships, offering more to customers,” Sicoli explained. “By unlocking the synergies, both from a network perspective and a cost perspective, it enables the company to have more resources to expand the network even further.”

And expansion is certainly in the cards, Sicoli said – which means the space can expect further consolidation. “It’s a scale business, telecom. So I think the consolidation of these smaller, regional players is somewhat inevitable,” he predicted. “Zayo has done a lot to accelerate the pace of that. But there are a lot of chips still on the table to roll up.”

Once the merger completes, the new company should become an engine of such consolidation, Sicoli said. “I think this combination creates a more formidable player to compete for those assets and not just have it be a Zayo-only roll-up strategy. I know that the Berkshire guys and Rob very much intend for this to be a platform to roll up additional players in the space,” he said.

Which dominoes fall next will depend on company strategy as well as a bit of serendipity, Sicoli believes. “I think the desire would be to do something regionally that makes sense, as opposed to sort of jumping over and buying a random asset on the West Coast or in the Midwest,” he explained. “But you never know. Sometimes you have to take the deal flow as it comes and when it’s available.”

Sicoli said it is unlikely he’ll still be with the company when those decisions must be made; Shanahan has already been named CEO of the combined company, which won’t need two CEOs, Sicoli said wryly. Other executive appointments have not been made yet, but Sicoli said he expects “significant representation” from both the current Sidera and Lightower executive teams.