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AMP Capital’s Everstream acquisition… a case study in institutionalising PE-owned businesses

Global investment manager AMP Capital, one of the world’s top 10 infrastructure investors with over USD140 billion in AUM, had been looking closely at the US fibre sector for quite some time before it eventually decided to acquire Everstream last year. 

Global investment manager AMP Capital, one of the world’s top 10 infrastructure investors with over USD140 billion in AUM, had been looking closely at the US fibre sector for quite some time before it eventually decided to acquire Everstream last year. 

The rationale was clear: although AMP Capital already owned two fibre platforms in Europe (Ireland and Spain respectively), it saw a much greater relative value play in the US. Multiples were similar to Europe, but in AMP Capital’s view, the growth rate forecasts for US assets were quite considerably higher than those in Europe.  

Keen to steal a march on its competitors, AMP Capital sought out to identify the best acquisition. Three companies made the shortlist, before the team settled on Everstream, a super-regional network service provider bringing fibre-based Ethernet, internet and data center solutions to businesses throughout the Midwest. 

RV opportunity

“After we bought Everstream we saw a bit of a rush among our European peers into the US market. The RV arbitrage opportunity we had identified narrowed pretty quickly,” explains Matt Evans, Partner, Global Head of Communications, Infrastructure Equity.

Aside from the quality of the management team, led by Everstream President and Chief Executive Officer, Brett Lindsey, what made this deal particularly attractive to AMP Capital was the opportunity to deploy significantly more capital into the asset, post-acquisition, after it had completed the deal in September 2018. 

Prior to the deal, Everstream had been successfully owned by the Boston-based private equity firm, M/C Partners. 

In order to lead Everstream into the next stage of its growth, there was a collective understanding that this would require significant capital deployment; precisely what an infrastructure manager like AMP Capital is willing to do. 

The thinking goes that rather than focus on the highest pay-off projects, with relatively short investment periods, by making significant operating capital available to Everstream’s management would allow them to pursue longer-term opportunities and attract bigger clients. 

”We believe that within the next decade or so connectivity will consist entirely of hybrid fibre-wireless networks. But to achieve this requires putting a lot of capital into the ground. Rather than buying those assets once they are finished, we think there’s a better investment proposition to buy an asset like Everstream that gives us a good platform and has the capability to deploy more capital across its footprint,” explains Evans.

Focus on Midwest network growth

He says that when AMP Capital agreed to buy the business, they made it clear to Lindsey’s team that a significant Capex facility would be made available “so they knew that if they secured new customers, or secured interesting bolt-on acquisitions, the capital was instantly available; subject to meeting a few standard conditions,” adds Evans. 

Since January 2019, Everstream has since proceeded to make three bolt-on acquisitions. It is now in the process of unlocking contracts with some significant wireless carriers in the Midwest as part of its ongoing strategic growth plan.  

“When you’re doing these deals at effectives multiples below where the M&A market is, it’s nicely accretive but what it also does is give you the ability to enter into new markets and monetise the networks a little more effectively,” remarks Evans. 

This is all part of a concentrated strategy, the aim being for Everstream to become the Midwest’s largest independent fibre player. 

“That’s the geographic focus,” asserts Evans. “We won’t look beyond. If you stretch the management team too thinly you risk them losing focus.

“Brett and his team manage everything centrally out of their head office in Cleveland. We don’t want him travelling across the US and not giving the Midwest region the proper attention it deserves. Focusing on those states geographically adjacent to one another in the Midwest felt like a sensible approach, both from a management perspective and importantly a customer perspective.”

As part of this expansion play, AMP Capital is helping Everstream’s business move from Northern Ohio and Michigan into Southern Ohio, Indianapolis, Wisconsin and Illinois, doubling Everstream’s workforce in the process as it brings on board new sales teams and telecoms specialists.

By building scale, including developing network in areas like Columbus, Ohio, Everstream will be able to serve customers even more cost-effectively because of improved network capabilities. 

Evans hopes this can position them as the most competitive provider in the Midwest because Everstream would have to build less fibre network infrastructure than others. 

“We are literally stringing new fibre networks together, either underground or via mobile tower systems,” he says. “It has been an exciting period unlocking new opportunities, which has been backed by significant earnings improvements. We are further ahead in our EBITDA numbers than where our initial acquisition forecast was.”

Owner transition cycle

Every business has a different optimal owner at different points in time. CEOs in the US private market are cognizant of this cycle of ownership, from VC and early stage funding to PE funding and then on to infrastructure or institutional ownership. 

From the get-go there was a meeting of minds between Everstream, its incumbent sponsor M/C Partners, and AMP Capital, with broad understanding that the firm needed a different source of capital to support the business. 

Other firms were looking to buy Everstream that would have supported the management team, which prompted AMP Capital to take what Evans calls “a reasonably high conviction approach to acquiring the asset”. 

He explains there was an indicative bid and confirmed indicative bid stage before shortlisting for final bid. 

“From the confirmed indicative bid stage, we negotiated that we would proceed on an basis of exclusivity. Everstream’s management and owner knew we were an informed sponsor who understood telecoms, and enterprise transport specifically, having already acquired a number of businesses. 

“We brought more than capital to the table. It was one of those rare situations where it felt like everything aligned properly to complete on the deal,” outlines Evans.

Three key themes under 5G 

As the strategic growth plan plays out over the next few years, one of the obvious thematic opportunities for Everstream is the 5G network roll out across the US. This will rely exclusively on fibre connectivity. Evans points to three important themes driving fibre: 1) The cloud, 2) fibre to the tower, and 3) Small cell infrastructure.

“With respect to fibre to the tower, pretty much every cell tower will need to be fibre connected; part of this is to ensure delivering data to the customer, and part of this is network owners changing their architecture and moving core equipment away from towers back into their networks; something known as ‘front haul’ instead of ‘back haul’,” says Evans.

In his view, the US is running “significantly ahead of Europe” on small cell infrastructure. 

The question remains whether this will remain operator-owned or whether strong independent players will emerge. Either way, the cell nodes for 5G will need to be fibre connected, says Evans.

The Everstream acquisition is illustrative of how sponsor-to-sponsor deals can be mutually beneficial to all parties, and provide a clear path towards value creation for non-listed companies. To use a fibre analogy, it looks like AMP Capital has succeeded in connecting the right nodes, with this Everstream acquisition, to deliver further sustained growth for its infrastructure equity portfolio.  

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