PE has a $250M plan to build a new broadband competitor in the Sunbelt

Private equity firm Friedman Capital is looking to scoop up as many as 20 small ISPs across the Southeastern Sunbelt region in the U.S., aiming to build a sizable competitor capable of bringing better broadband to parts of the country experiencing rapid population growth. Benjamin Friedman, the firm’s chief investment officer, told Fierce Telecom that it’s already in negotiations and has signed exclusivity agreements with a number of acquisition targets.

The firm this week launched a new strategic investment fund to fuel its plan, aiming to secure $250 million in capital commitments. According to Friedman, the company is targeting deals with fiber and fixed wireless providers in what he called “SEC country.” For those not familiar with college sports, that would include the states of Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi, Missouri, South Carolina, Tennessee and Texas.

Friedman is no stranger to the telecom space. The CIO noted that he got his start investing in the high-yield distressed debt market and had a hand in deals involving the likes of Frontier Communications, CenturyLink, Windstream, Level 3, Equinix and Sprint.

Thus, the firm’s approach to its new undertaking is carefully calculated based on past experience. Friedman said it is not planning to take two large networks and slam them together, but rather roll up somewhere between 10 and 20 smaller assets into a single large provider. This process, he added, will likely take between two and five years.

“It’s a multi-year process. I think you start with a couple and you see what the opportunity is from a growth capital perspective, from an opex perspective,” he said. He added branding for the consolidated entity will similarly “develop over time.”

Asked why it’s focused on the Southeastern Sunbelt, Friedman said the region is not only experiencing “explosive population growth” thanks in part to the relocation of several large companies, but it’s also an area that other investors and even Tier-1 operators are less interested in. That’s because populations are a bit more spread out there and thus there are less synergies from a network perspective. As a result, internet access that is taken for granted in large coastal metro regions just doesn’t exist in the same way south of the Mason-Dixon line, he said.

Recent data from the U.S. Census Bureau backs up Friedman’s growth claim, showing cities in Florida and Texas accounted for nine of the top 15 fastest-growing metros in the country between July 1, 2021 and July 1, 2022. Among small towns, those in the Northeast collectively shrank by 0.4%, while those in the South grew by the same amount. And across cities of all sizes, those in the Northeast experienced numeric declines across the board while those in the South gained residents.

Friedman acknowledged there’s always risk associated with integration in M&A deals, but said with the right alignment and leadership incentives he believes the firm can make it work.

“This opportunity set I think is really, really attractive because you’re coming at a time where credit is tight, growth is there, but it takes somebody to put their foot down and say this is what I want to do, this is how I want to do it,” he said.

Friedman concluded: “I don’t care to compete with the Blackstone’s and Apollo’s of the world. They’re going to be looking at much larger scale investment and are going to miss what I believe to be a significant opportunity in the space.”