Recovery priming carrier M&A, CEOs say

Now that the economy is regaining its footing, mergers and acquisitions in the service provider space should heat up, two carrier CEOs said this week.

Market conditions have become much more favorable to mergers in the last three months, Global Crossing (NASDAQ:GLBC) CEO John Legere said during the company’s third-quarter earnings call today, pointing to its refinancing of $750 million in debt last month as a sign of receptiveness in the capital markets. “I believe we’re in a different environment than even the last time we spoke,” he said. “The biggest change is the capital markets change.”

James Crowe, CEO of Level 3 Communications (NASDAQ:LVLT), made similar comments during his earnings call yesterday.

“Capital markets seem to be getting far more friendly,” Crowe said. “When the economy collapsed, anyone’s ability to price risk and cash flow became difficult. There were big battles about multiples and what assets were worth. I think people are converging now to a more common understanding. You get those things in place — the right mind-set of principles in the industry and common views of value — and the necessary predicates of consolidation are going to increasingly be there.”

Though Legere said his team is focused chiefly on organic growth, he said carrier consolidation in general could improve not only shareholder value but customer value. “There are multiple players in our industry whose operations could be greatly enhanced by being one company instead of being separate,” he said.

One M&A candidate to watch in the carrier space (though outside of Global Crossing and Level 3’s sector) is Fairpoint Communications (NYSE:FRCMQ.PK), whose Chapter 11 bankruptcy filing this week might make it easier prey for a buyer. Some have speculated that Windstream (NYSE:WIN) might be interested in acquiring Fairpoint, though any deal would likely be put through a wringer by regulators burned by service problems that followed Fairpoint’s purchase of Verizon assets.

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