Zayo Group Holdings sets terms for $650 million IPO

Zayo Group Holdings, a national provider of fiber optic bandwidth infrastructure and colocation services, announced terms for its IPO on Monday. The Boulder, CO-based company plans to raise $650 million by offering 28.9 million shares (62% insider) at a price range of $21 to $24. At the midpoint of the proposed range, Zayo Group Holdings would command a fully diluted market value of $5.3 billion.

Recent financials
Revenue increased 12% (6% organic) to $1.1 billion for the fiscal year ended June 30, 2014 due to higher demand for bandwidth solutions and the completion of infrastructure and lit services acquisitions. Churn remained constant at 1.4%. Adjusted EBITDA grew 18% to $654 million due to operating leverage. The company increased stock-based compensation by 140% to $254 million during the fiscal year. Zayo had $3.3 billion of debt at the end of June, representing a debt/LTM adjusted EBITDA of 5.0x.

Business
Zayo has two main segments. The company leases its physical infrastructure on long-term contracts (44% LTM revenue), including dark fiber, mobile fiber-to-tower, colocation facilities and interconnection. It also offers "lit services" (54%), where the company powers its infrastructure and sells bandwidth to medium and large networks on shorter contracts.

The company boasts that gross installed revenue has exceeded churn (about 1.4% monthly) in every quarter since it began reporting in March 2010. As of the MRQ, Zayo had 81,000 route miles with 6 million fiber miles connecting to 15,700 buildings including 4,200 cell towers and 756 data centers. Its largest customer accounted for about 7% of revenue during the FY13 and the top ten customers accounted for 30%. Primary shareholders include Battery Ventures, Charlesbank Capital Partners, Columbia Capital, GTCR, M/C Partners and Oak Investment Partners.

Acquisitions
The company lists 30 acquisitions it has made since 2007 for a total of $3.7 billion, the largest of which was AboveNet in July 2012 for $2.2 billion. AboveNet, which had been listed on the NYSE, more than doubled Zayo's revenue and gave it a larger footprint in major metropolitan areas. It most recently acquired London-based Geo Networks for $292 million, which added over 2,100 route miles. In 2011 it paid $318 million for 360networks, an early fiber optic company that raised $1.4 billion on its 2000 IPO but filed for bankruptcy one year later.

Zayo Group Holdings, which was founded in 2007 and booked $1.1 billion in sales for the 12 months ended June 30, 2014, plans to list on the NYSE under the symbol ZAYO. Zayo Group Holdings initially filed confidentially on n/a. Morgan Stanley, Barclays and Goldman Sachs are the joint bookrunners on the deal.