It wouldn't be out of realm of reality for us to make an acquisition if there is a good strategic reason to do it and it makes good financial sense, said LaPerch, adding that he spends a fair amount of time looking at potential deals.
The executive said AboveNet could support up to $600 million of debt for a compelling acquisition, but would want to reduce that level over time after a deal.
White Plains, New York-based AboveNet, with market value of $1.44 billion, has about $90 million in cash and about $55 million in debt on its balance sheet.
The company was formed after its parent, Metromedia Fiber Network Inc, reorganized following a 2003 bankruptcy. AboveNet provides high-bandwidth connectivity solutions mainly to large businesses and communication carriers. Its infrastructure is used by commercial banks, brokerage houses, insurance companies, investment banks, media companies and social networking companies, among others.
AboveNet, whose competitors range from big telecom companies like Verizon Communications Inc
D.A. Davidson analyst Donna Jaegers said Sidera Networks might be one of AboveNet's top acquisition targets.
The kind of assets in general that AboveNet is looking at would be other local fiber networks that are close to existing markets so that they can flesh out the footprint more, and that's where Sidera Networks fits in well, she said.
Sidera, a broadband services provider formerly known as RCN Corp, was acquired by investment fund ABRY Partners last year for $536 million.
Analysts say private equity players have been paying 10 to 12 times cash flow to buy network companies.
Regional and local fiber companies similar to us are all doing very well and are all commanding high multiples, LaPerch said, referring to recent deals.
Last year, for instance, Court Square Capital Partners bought Fibretech Networks for $500 million, and analysts estimate the price was 10 to 12 times EBITDA. In October, Zayo Group bought 360 Networks Holdings for an estimated nine to 10 times EBITDA.
While AboveNet has considered purchasing some companies, LaPerch said he ultimately decided the deals did not make economic sense.
AboveNet would likely be paying six to eight times on a cash flow basis, Jaegers said. At that valuation, Sidera would be worth about $500 million, she said.
AboveNet seems to be unaffected by macro-economic conditions, as the amount of bandwidth consumed by businesses -- which make up its core customers -- is increasing rapidly.
Despite what economic malaise is out there, the growth in bandwidth seems pretty good and pretty constant, as does the migration to data centers, LaPerch said.
Interest in cloud computing has also pushed up demand for bandwidth. IT research firm Forrester has forecast the global cloud computing market will grow to $241 billion in 2020 from $41 billion this year.
Demand for cloud computing is driving AboveNet, said Dougherty & Co analyst Mark Kelleher. Data centers are just isolated islands unless they have a highway that runs into them, and that's AboveNet, he said.
AboveNet, which gets about a third of its revenue from the financial sector, is also diversifying into other areas such as healthcare and education.
LaPerch said its financial sector business is still growing at a nice pace, but diversification has helped the company.
(Reporting by Supantha Mukherjee in New York; Editing by Peter Lauria and John Wallace)