My Prediction Comes True: EXA Buys Aquacomms And Its Significance

I predicted a couple months ago that EXA was consolidating the Atlantic and would purchase Aqua Comms, which has been struggling, and whose estimated value was written down by its former owner, an infrastructure fund. The telecom street tells me the purchase was a mere $54 million for all of Aqua Comms' assets. That $54 million includes the the four fibre pair AEC1, two fibre pairs on AEC2, which is a consortium project, and two Irish Sea cables. That's not very good. In fact, it is terrible. A fraction of construction costs. It's a great contrarian EXA move because EXA can absorb the company's assets, but fire 99% of the employees. A lot of venture capitalists are bullish on telecom infrastructure without really understanding the challenges (they should hire me for a lot of money to educate them). 😃

So what went wrong? Poor operational performance probably played a role, but probably focusing on Ireland was a mistake. The big potential clients for Ireland are Google, Amazon, Apple, etc. But the Digital Giants are now really gigantic. They represent probably 80% of the traffic flows into the Emerald Isle, which means they are so big that building their own networks is the most economic choice. The OTTs have outgrown the telecom carriers and taken most of the market with them. In the old days (2000-2010) the OTTs were just really big buyers. Now they are the major source of supply as well.

The only great return I am aware of on a subsea infrastructure investment so far was Hibernia Atlantic, which Columbia Ventures purchased in bankruptcy for $25 million in 2001 and sold for slightly over $600 million to GTT in 2016. See the SEC filing: https://lnkd.in/dCeB-KwW. Contrarian investing is still a powerful and highly successful way of generating high returns. Vulture investing. Note to EXA employees. I know the details of the GTT acquisition of Hibernia better than you do. 😉

EXA Infrastructure's purchase is really about eliminating competition. At this point it is really a two carrier fight between EXA and Telxius. But the purchase itself if integrated properly probably will improve net cash flows. Here is the press release. And here are the purchase details. 




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