Cogeco offer is a good deal for Peer 1 shareholders, says Byron Capital

On Friday, Cogeco (TSX:CCA) and Vancouver junior Peer 1 Networks (TSX:PIX) announced they had entered into an agreement in which Cogeco would acquire Peer 1 for $3.85 a share. The offer represents a 32.1% premium to Peer 1′s 20-day volume-weighted average share price.

In a research update to clients Friday, Byron Capital analyst Rob Goff said Cogeco’s offer is in line with peer transactions such as BCE’s billion dollar pickup of data-hosting company Q9 Networks this past June. He expects the transaction will have no problem finalizing, considering shareholders representing about 62% of Peer 1 shares have agreed to tender to the offer and just 66.6% is required. The only caveat to this assessment, he says, would be a competing bid. Goff says Peer 1 might be an attractive target for Rogers, but considers a late entry from that company a stretch because the valuation on the Cogeco deal is “solid”.

The Byron analyst says Cogeco’s interest in Peer 1 is the latest move in a broad-based sector consolidation that has featured a wide range of buyers, including legacy telco and cable providers, private equity groups and dedicated web hosting/managed service providers. He says Cogeco can finish Peer 1’s expansion in the U.K. and in Toronto, an derive $10 – $12 million of incremental revenue from each of four sites in the two areas. He believes this alone will generate $4.5-$5.4 million of incremental EBITDA for Cogeco.

Vancouver-based Peer 1 Networks, which was founded in 1999, provides Internet hosting services such as managed hosting, dedicated servers, and cloud computing. The company boasts more than ten-thousand customers with seventeen data centers located in Canada, the U.S. and the U.K. Peer 1 customers include household names such as Plenty of Fish, Virgin Gaming and WordPress.com. The company’s revenue has grown steadily, from $89.3-million in fiscal 2008 to the $133.6-million it reported as 2012′s topline in September.

Shares of Peer 1 closed Monday at $3.83, just two cents below the proposed takeout price.

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