Leighton to sell NextGen, Metronode, Infoplex


news Diversified contract and industrial group Leighton Holdings has flagged plans to sell its NextGen, Metronode and Infoplex telecommunications and technology businesses, in a move which will move the so-called “non-core” assets off the company’s books and potentially into the arms of another major player in the sector.

The three companies are well-known in Australia’s technology sector and to some degree complementary. Nextgen Networks owns and operates Australia’s second largest long-haul fibre optic network (behind Telstra), spanning over 18,000 kms and connecting capital cities and major regional centres. Through this network, the company claims, Nextgen is one of only three truly national data connectivity service providers. The network was expanded significantly in 2011 connecting Brisbane to Darwin, as a result of Nextgen winning the Regional Backbone Blackspots Program (or RBBP) and Nextgen took up a long term lease on the network. The network offers redundant capacity between key capital cities.

Metronode, according to Leighton, is a datacentre specialist with assets throughout Australia and expertise in next generation data centre design and construction. Metronode currently operates six datacentres in Australia. This includes five “well-established” facilities providing a total of 2.8MW capacity operating at 100% average utilisation and one Generation 2 datacentre in Melbourne opened in July 2012, with 1.5MW capacity expandable to 12.2MW. Three further Generation 2 datacentres are being constructed in Sydney, Illawarra and Perth, with one more in Canberra in the planning phase.

Lastly, Infoplex offers private cloud and managed hosting services. Its services provide “a flexible and cost-effective data storage and retrieval solution” to organisations preferring not to purchase and maintain their own physical IT infrastructure. Infoplex is well positioned to capture the strong forecast growth expected in this segment, the company claims.

In a statement published yesterday, Leighton said: “Following the completion of a detailed strategic review of its telecommunications infrastructure assets, the Board intends to explore a potential divestment of Nextgen Networks, Metronode and Infoplex. The decision is part of the company’s previously announced strategy of recycling capital as these assets are considered non-core.”

Leighton chief executive Hamish Tyrwhitt said that construction, maintenance and field services opportunities in the telecommunications sector remained strong and were not dependent on the ownership of telecommunications assets. “We remain absolutely committed to this sector of the market through our subsidiary brands Visionstream, Silcar (50% owned by Thiess) and John Holland Communications. A divestment of the non-core assets would enable us to continue to provide those services to the telecommunications sector without owning infrastructure,” said Tyrwhitt.

“We have received a number of unsolicited inquiries and Macquarie Capital has been retained with respect to the potential sale process. However, we will not sell these assets unless there is a compelling value creating proposition for our shareholders. We will make further announcements as and when appropriate,” he added.

Oh, wow. Leighton is interested in selling Nextgen Networks. This is a major network asset – one of Australia’s largest fibre rings – and I would expect companies ranging from iiNet, to TPG and possibly Optus to be highly interested in buying it. This has the potential to add significant bulk to one of the major telcos in Australia. Telstra would doubtless be prohibited from buying it due to competition concerns. But perhaps NBN Co might also be interested?

For those that don’t know the history of Nextgen, it’s a fascinating story. As Wikipedia details, the network was originally built during the early years of last decade, when there just wasn’t much fibre in Australia at all, apart from Telstra’s network and a bit of infrastructure owned by Optus. It was initially constructed at a mammoth cost of somewhere close to $850 million. Initially Leighton only owned 15 percent of the company, but it bought the rest in late 2002 for between $20 million and $30 million after Nextgen went into administration. Yes, that’s correct – the infrastructure was written down by $800 million or so, after the floor fell out of the interstate network transit market.

This week, The Australian reported Leighton could be looking to pick up between $600 million and $800 million for the network. Not a bad return on investment if they can get it.

Image credit: Hans Thoursie, royalty free


    • Doesn’t surprise me. The fact that it has taken six months means there aren’t many buyers — certainly only a handful which could afford it. Perhaps Leightons should look at listing it instead?

  1. Yeah, don’t think iiNet will be big enough to pick up that ticket price. TPG – maybe.

    Would think that Optus might be prevented from buying it too as that would really put the back haul into only two players.

  2. As to potential buyers:

    TPG might be able to do it, but it would put them at debt to ebitda ratio of about 4 (compared to 2 when they took on PIPE). Not impossible given TPG’s pretty phenomenal profit performance in a low margin industry, but not a home run. Remember that TPG were not willing to offer the 300 million for AAPT and its intercap fibre network that Telecom NZ was after, would they really stretch to 800 million for Nextgen? AAPhad revenue of 650 million, Nextgen is only 200 mil or so. Teoh has shown himself to be an astute buyer of distressed or undervalued businesses, not someone to pay list price for a healthy company.

    iNet would end up with an debt to ebitda of 8, which most observers would consider to be dangerously high.

    More importantly, neither of the above businesses have any real business market DNA. TPG has tried to move into the space, iiNet has through it’s Internode acquisition but even the Internode name is a small one in the business market outside of SA. They would be acquiring a large business that they have little institutional understanding of. Rarely a good sign.

    Telstra and Optus would be blocked on competition, and their fibre rings are diverse anyway.

    NBNCo would be stopped by their last mile access charter. Every telco in Australia would scream if they started competing in intercap and interPOI transit. They don’t need the Metronode datacentre assets and they aren’t interested in becoming an MSP through Infoplex.

    That leaves someone else entirely coming in, which could be anyone really. An offshore telco looking to land with a splash in the Australian market – AT&T, NTT, Tata. A utility deciding it wants to be a real NBN player.

    The real dark horse would be vodafone looking to boost their mobile tower backhaul – but the Nextgen metro fibre network isn’t that big and they sell access to it at a reasonable cost anyway. It is pretty hard to see where it ends up landing.

    • Very good summary here. I think the fact that there are a lack of buyers is why it hasn’t been sold already. It seems to me the next logical step might be a listing? I doubt private equity would be interested — they usually don’t like infrastructure plays as there’s not huge potential for expansion.

    • Would a possible alliance between TPG and VHA be an option? They both want to enter the NBN market in a big way they both have very similar customer base and pricing methodology and TPG is currently the contractor for expanding the VHA network.

      The benefit i can see from this would be combining pipes international link (which is about to have a massive upgrade) and nextgens superior domestic network. The economies of scale and being able to utilise the new capacity of the international link could push through further network development important to both companies.

      For example the planned PPC extension to auckland and would be good for vodaphone as they operate in new zealand, and good for TPG as it potentially opens up a new market (New zealand) and the brisbane link could compliment nextgens network that extends up to darwin

Comments are closed.