Telecom Finance by Ms. Katy Hunt

29 September, 2017

US communications infrastructure company Digital Bridge expects to announce its first fibre-specific investment by the end of the year, on the heels of the appointment of former Wilcon CEO Jon DeLuca to lead strategy in the space.

“As we look at the digital infrastructure sector, all roads lead to fibre”, Digital Bridge CEO Marc Ganzi said in an interview with TelecomFinance, noting that all pieces require fibre as networks broadly converge.

“This is the last leg of stool for us”, Ganzi said, highlighting the firm’s successful investment in macro towers, small cell networks and data centres. Digital Bridge has raised more than US$6.8bn in debt and equity to buy and invest in communications infrastructure businesses.

Regarding M&A strategy, Digital Bridge has “a lot of irons in the fire”, Ganzi said. “And the tip of the spear for us is people”, he added, referring to the hiring of DeLuca this week to lead the firm’s fibre investment team.

DeLuca was a founder of privately held Wilcon Holdings, a Los Angeles-based communications infrastructure provider focused on the fibre, small cell and data centre. He most recently served as CEO, and played a key role in the company’s growth and eventual US$600m sale to US towerco Crown Castle (NYSE:CCI) in April.


‘A big canyon of opportunity’

Digital Bridge currently is looking at three different investment opportunities that range from US$150m of equity up to US$1bn, Ganzi said.

“It’s a big canyon of opportunity”, Ganzi said. In context of the new fund, Digital Bridge’s “targeted check size” is US$200m to US$350m, if the deal does not include a co-investor. If the firm has a co-investor on the transaction, the company can look at investment opportunities of US$650m to US$1bn, he said.

With DeLuca’s hiring, Digital Bridge gains the “in-house expertise” needed to effectively engage in the fibre space.

“We have looked at fibre assets and have not been able to acquire them,” Ganzi said. “With Jon, we are confident he will help us build out fibre practice, and lead us through new investments we are contemplating making.”

DeLuca said his team would source and evaluate acquisitions of existing fibre businesses and the development of new fibre networks. It would also consider investment opportunities to extend the capabilities of existing infrastructure to deliver additional services, particularly in the small cell space.


The global perspective

Digital Bridge plans to deploy capital in fibre-based networks in multiple geographies.

“We are not limited geographically”, DeLuca said, underscoring the firm’s focus on rebuilding the global communications infrastructure. The same trends seen in the US are playing out globally, with the US traditionally acting as the harbinger of demand, he noted.

In the US, Digital Bridge is in a better position through consolidation, with demand accelerating, DeLuca said. The macro trends are not going to change for a decade or two, he added, calling it “a period of tremendous growth”.

Indeed, the firm is concentrating most of its sourcing and execution on North and South America.

Digital Bridge continues to navigate “intriguing” opportunities in Europe, but they are fraught with sovereign and political risks, Ganzi noted. In addition, the European market has a complicated regulatory landscape and assessing those hurdles is a huge part of Digital Bridge’s business, he said.

Regarding emerging markets, such as India and Africa, Ganzi said: “Those are places we probably won’t go. With Asia we can’t say we are burning a lot of calories in that part of the world. The regions where we historically invested will continue to be the sandboxes we play in.”


Proprietary deals

Digital Bridge has a “deep rolodex of advisers”, Ganzi said, and is open to a variety of deal structures. The firm is also a big believer in partnerships and continues to seek partners for its new fund.

“We do hope to uncover proprietary deals. That is one thing I hope to bring to the firm”, DeLuca said, noting that the firm has creative financial strategies and strong banking relationships.

Corporate carve-outs and “fibre optic networks that are underloved by corporate parents” are two types of opportunities DeLuca threw out as options for the firm as it sources targets.

The company also would consider de novo opportunities and greenfield investments. Whether it is under a platform or a new venture, “hopefully we will have the opportunity to differentiate ourselves for investors”, DeLuca said.


An active portfolio

Founded in 2013, Digital Bridge invests in communications infrastructure sectors including tower and rooftop antenna site ownership, development and management; data centres; fibre and back-haul; cloud storage; and, small cell, DAS and WiFi.

Last week DataBank, a Digital Bridge portfolio company, acquired Baltimore-based Edge Hosting as consolidation in the data centre space continues to fuel M&A demand. Florida-based DataBank operates data centres in Dallas, Minneapolis, Kansas City, Cleveland, Pittsburgh, Salt Lake City and Atlanta.

In March, Digital Bridge was part of an investor consortium that acquired Vantage Data Centers, a privately held hyperscale data centre operator, from Silver Lake Partners. The deal included four data centres on Vantage’s Santa Clara, California-based campuses, along with two additional facilities under construction, as well as secured land for a standalone campus that will bring total expandable capacity to 144MW across both sites.