Industry Focus: Buyout Firms Get In on Fiber Optics –

Two recent deals illustrate two approaches to the fiber optics infrastructure space. Odyssey Investment Partners recently led an equity round for a company that provides fiber-optic communications for major telephone companies, while Behrman Capital bought a company that installs cabling infrastructure in office buildings.

“Some buyout groups recognize the unbelievable growth in the telecom industry and they are trying to play indirectly through the infrastructure sector,” said Ed Bagdasarian, a partner at investment bank, Barrington Associates, which recently advised on several deals in the fiber optics infrastructure space.

Within fiber optic networks installation there are various specialized companies that perform different services for different customers. Some are involved in the many steps of constructing networks used by telecommunication companies (outside plant). Meanwhile, others install the cabling used to link together the various phones and computers of a building (inside plant).

So-called outside plant companies focus on installing network cables underground or on telephone poles. Such networks can be leased or sold to telecommunications companies.

Last month PF.Net, which is backed by Odyssey Investment, Koch Telecom Ventures Inc., was awarded a contract to install part of AT&T Corp.’s fiber optic network. PF.Net and the other companies hired by AT&T for the project submitted bids to win the contract.

PF.Net, along with several others, will construct over 10,500 miles of new fiber-optic lines for AT&T’s use. Through its agreement with AT&T, PF.Net will take about two years to build 5,000 miles of the AT&T network while the company simultaneously builds its own network.

Odyssey Investment led a $125 million investment in PF.Net in November, which included capital from UBS Capital and Warburg Dillon Read. The group owns about 35% of PF.Net with the investment.

Bagdasarian said outside plant contracts like PF.Net’s with AT&T will become more common as telecom companies find it too costly to use their employees to “trench,” or lay down the fiber optic lines.

Other buyout firms, such as Behrman Capital are placing their bets with inside plant companies.

In November, ACS Communications Inc., majority-owned by Behrman Capital, bought ICG Fiber Optic Technologies, a regional provider of structured cabling infrastructures, bringing the combined companies’ revenue to $100 million.

Both ACS Communications and ICG Fiber Optic install fiber optic cables within businesses.

Inside plant companies tend to produce lower margins, Bagdasarian said.