Amid the forest of large cable and telecoms carriers that dominate broadband services in the U.S., a profitable, smaller upstart out of Washington state is making an acquisition of another small player to build out its business in Silicon Valley.
Wave Broadband, a gigabit fiber and broadband services company serving both business and residential users, has bought Layer42 Networks, a company that provides businesses with Internet, colocation and data transport and is active in the Bay Area. Specifically it is the only colocation provider in the Mountain View corridor.
Like Wave, Layer42 is profitable. It has 150 customers including high-profile companies like Dropbox, Square and Barracuda Networks. The company, now to be known as Layer42 by Wave, will continue to serve those customers as Wave invests in expanding Layer42 with more hires and tech investments.
According to Steve Weed, Wave’s CEO, the latter was largely the reason for Layer42 accepting an acquisition offer from Wave in the first place.
“Smaller service providers are having trouble scaling to customer demand profitably,” he says, adding that in cases like this, merging with a company somewhat bigger but not a leviathan that will swallow them whole gives the smaller provider a chance to continue building direct relationships and services, while at the same time benefitting from bigger networks and investments. Wave, founded in 2002, has 430,000 Internet, cable and phone subscribers in Washington, Oregon and California.
“We are excited to join forces with Wave, as that company has a unique track record of successfully integrating new companies and technologies to deliver great products and services to business customers throughout the West Coast,” said Derek Garnier, Layer42 Networks CEO, in a statement. “When it comes to network and collocation services, we believe that partnering with Wave gives us the best opportunity to effectively address growing needs in the San Francisco Bay Area marketplace and beyond.” Garnier will become an SVP of data center services.
Wave has grown both organically and by acquisition, with this being the company’s 18th acquisition to date. Terms of the deal were not disclosed, but Weed says it was in the “midrange” of its previous company purchases. From what we understand it is a figure in the tens of millions of dollars.
For its part, Weed says privately held Wave has annualized revenues of $380 million with “good operating margins” because it owns its own assets. The company raised $130 million a few months ago to build out more of its fiber network at an accelerated pace — most of the rest of its capex comes right out of the company’s own earnings.
He says the company may take on additional funding in the future in the event that it buys a larger business, valued for example in the hundreds of millions. But there won’t be any wild, aggressive expansion to the rest of the U.S.: The company has no plans to expand outside of the West Coast.
Wave says it now connects more than 50 data centers on its rapidly expanding fiber network in California, Oregon and Washington.