Rogers Communications Inc. is buying a vast fibre-optic network with direct access to more than 1,000 small and mid-sized firms, a major boost in the crucial business telecommunications market.
The $425-million deal for Atria Networks LP, which analysts said makes strategic sense but could have come cheaper, puts the communications giant in a far better position to explore urban markets around and beyond its network footprint for lucrative business customers as corporate spending on telecom services begins to pick up after the recession.
For Rogers, the deal could not have come at a better time, given that the consumer sides of its core cable, phone and Internet businesses are beginning to mature.
Tuesday's deal also gives Rogers a leg-up over rivals Telus and Bell, with a valuable, high-quality network that would have been extremely expensive, and time-consuming, for Rogers to build.
By purchasing Atria, Rogers gains an extensive list of 1,100 existing business clients, with the obvious potential to gain many more.
At the same time, it will also keep the assets out of the hands of its rivals - particularly, as Canaccord Genuity analyst Dvai Ghose notes, the wireless new entrants that may be seeking to expand beyond wireless cellphone service and into other telecom services.
"Rogers' consumer business is maturing over time," said Greg MacDonald, a telecom analyst with National Bank Financial Inc. "In addition, cost of capital is at record low levels for Rogers so it makes sense that the company would look to expand in the small, medium business segment via acquisition."
Atria Networks, a private company based in Kitchener, Ont., has roughly 5,600 kilometres of fibre-optic cable around Ontario, including Ottawa and high-growth areas like Kitchener-Waterloo and the Greater Toronto Area.
Fibre-optic cable is perfect for moving massive amounts of data around very quickly, and could be used to help ease the pressure on Rogers' networks from the huge amounts of wireless data required by smart phones and streaming video online.
"It's a build-versus-buy decision," said Jeff Fan, an analyst with Scotia Capital Inc., referring to Atria's extensive network. "It makes strategic sense."
Mr. Ghose said he expected the assets to be sold much more cheaply, in the area of between $300-million to $330-million.
"The valuation is significantly above our expectations," Mr. Ghose wrote in a research note to clients, "but it is not overly material for a company of (Rogers') size."
Analysts suspected that Montreal-based Cogeco Cable was also eyeing or bidding on Atria, which has 130 employees who will transfer to Rogers. Atria was owned by Birch Hill Equity Partners.
"The business-to-business market represents a significant opportunity for Rogers," said Nadir Mohamed, Rogers president and chief executive officer.