Toronto-based managed services provider and colocation provider Cogeco Peer 1 has a new owner today after being sold by Cogeco Communications Inc. to Boca Raton, Fla.-based Digital Colony for $720 million, according to a report by The Canadian Press.
CDN has learned the deal is targeted to be complete by May 31. Digital Colony plans to keep Cogeco Peer 1’s executive team in place, and invest to hire more employees. The headquarters will remain in Toronto, and Cogeco Peer 1 will be rebranded to reflect its new ownership. Also, Cogeco Communications will keep a portion of the fibre networks currently owned by Cogeco Peer 1 in Toronto and Montreal.
The new ownership structure will see Cogeco Peer 1 “become a standalone business,” according to a LinkedIn post by Susan Bowen, president of Cogeco Peer 1. “As a company, we are grateful for the support and resources Cogeco Communications has provided and as we enter our next phase of growth, we will continue to focus on innovation and meeting the needs of our customers.”
Cogeco Peer 1 leadership remains in place
Bowen will remain the CEO of Cogeco Peer 1 and retain her executive team, said Steven Sonnenstein, managing director of Digital Colony in an interview. “We feel the company has great leadership with Susan and her executive team. They’ve all impressed us.”
That new standalone business will include a portion of Cogeco Peer 1’s 3,300 km of fibre in the Toronto and Montreal areas, 16 data centres across North America and Europe, and offices in Toronto and Vancouver. Cogeco Communications will retain a portion of that fibre network for its own network needs, according to Philippe Jetté, CEO of Cogeco Inc.
“Cogeco Peer 1 has a substantial amount of fibre optics in Toronto and Montreal. There’s more than enough for Digital Colony to grow their business and for Cogeco to retain for its business,” he said.
The deal also included a commercial agreement between Cogeco Communications and Digital Colony to work together as partners, Jetté says. “It’s not an asset sale, it’s a sale combined with a partnership.”
The agreement is to work to a transaction close at the end of May. Cogeco Peer 1 operates as per usual until then, Jetté says. After May 31, Digital Colony will take ownership and “obviously rebrand under a new banner.”
Jetté made it known in January during an earnings call that a sale of Cogeco Peer 1 was a possibility. He didn’t provide any details on whether discussions were held with other interested acquirers. A lot of time was spent in talks with Digital Colony he says, and the deal provides “four wins” – for Cogeco Peer 1’s customers, employees, growth, and success.
‘A diamond in the rough’
Cogeco Peer 1’s financial performance has been missing analyst expectations and dipping in revenues for the past three years. But Jetté defended the subsidiary’s financial outlook.
“In the past three years we’ve repositioned Cogeco Peer 1 in segments of the marketplace where we could have the best customer experience and a global customer base of 82 countries,” he said. “We turned the business around from a negative cash flow to one that’s plus $30 million. Digital Colony has seen that as an opportunity that they want to scale and grow.”
Cogeco Peer 1 offers core assets that Digital Colony can use to create value, Sonnenstein says. The investment firm’s basic premise is simple – as the digital economy continues to grow, the infrastructure that underpins it will become more valuable. By providing assistance with day to day operations and supporting Cogeco Peer 1’s management team with more resources, the investment firm can improve performance.
“Cogeco is predominantly a B2C type business that serves retail. Cogeco Peer 1 is a diamond in the rough that we engaged in and ultimately acquired it,” he said.
Cogeco Peer 1’s new structure and family
A new structure for Cogeco Peer 1 will see two divisions of the firm created: a fibre division and a data centre division, according to Sonnenstein.
“The fibre division will be Canada’s first independent, neutral-host provider of small cell and 5G infrastructure and enterprise and wholesale fibre connectivity. The company’s data center division will concentrate on enabling multi-cloud services for enterprises while reinforcing its role as a leading hybrid-solutions managed service provider,” a press release states.
Digital Colony appears to be dedicated to investing in digital infrastructure. The company has a $2.4 billion venture fund that was raised last year, according to Crunchbase.
Its investment strategy, according to Sonnenstein, is all about acquiring infrastructure. It focuses on owning macro towers, small cell towers, data centers, and fibre networks. Cogeco Peer 11 is its fifth investment. It previously acquired Finnish firm Digita, which is a broadcaster that’s expanded its services to wireless data.
Digital Colony is a fund of Digital Bridge Holdings LLC. Other recent infrastructure investments include:
- A Dec. 4, 2017 acquisition of Andean Tower Partners from Berkshire Partners.
- An Aug. 28, 2018 investment in Stratto Ltd., becoming majority shareholder in the U.K. small cell operator
- A Nov. 5, 2018 acquisition of London-based Open Cell Ltd, a wireless provider 100 active networks. Open Cell is to join Stratto’s team to create a combined platform.