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FiberNet Buys Gateway Colocation

Carrier Hotels Staff Posted Jan 6, 2004

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FiberNet Telecom Group, Inc. will acquire Gateway Colocation in a deal valued at $3.97 million, the two companies announced today.

The deal provides FiberNet with a 49,000 square foot colocation center at 165 Halsey Street, a Jersey City carrier hotel. The facility is 60 percent occupied by Gateway customers, including 25 carriers, Internet service providers and cable companies. The center is already connected to FiberNet's metro transport network, which connects many of the largest carrier hotels and office buildings in the New York area.

FiberNet will fund the acquisition with $170,000 in cash and 2.9 million shares of common stock, valued at about $3.8 million. The deal also includes an "earn-out" payment based upon ongoing revenues at the facility. The earn-out payment will also be paid in shares of FiberNet common stock.

The acquisition comes a day after FiberNet President and CEO Michael Liss was appointed Chairman of the Board as well. Liss outlined an ambitious future for the New York-based network services provider, which also operates a meet-me-room at Manhattan's 60 Hudson Street carrier hotel.

"This strategic acquisition expands our footprint in this key carrier hotel, where we already have a presence," said Liss. "We believe that there is an opportunity for FiberNet to fill the vacant colocation space in the facility with one or more customers seeking fully redundant space outside of New York City.

"Additionally, we intend to gain additional transport revenues from other customers of the facility and tenants of the building, leveraging the communications hub infrastructure that we are acquiring," Liss added.

Gateway had total assets of approximately $5.1 million as of Oct. 31, and had 2003 revenues of approximately $1.9 million in revenues through that date.

"The transaction is consistent with the emerging consolidation of telecom and data networking businesses that have survived the earlier difficulties of this sector," said Oskar Brecher, a founder of Gateway Colocation. "We believe that offering customers both colocation facilities and transport with a broad footprint generates tangible value."

The deal is expected to close by Jan. 31, at which point Brecher will become a member of FiberNet's board of directors.