Is Carlyle Looking At The Next Fiber Gold Rush?

Private equity has certainly been waking up to tech lately (including the recent discussions about disk drive maker Seagate (NYSE:SGX), so perhaps Carlyle's interest in cable and wireless equipment maker CommScope (NYSE:CTV) is nothing more than an opportunistic deal. Thinking about the bigger picture, maybe Carlyle is looking for a second gold rush in the cable and fiber markets.

The Deal That Might Be
At this point there is no official deal, but CommScope has confirmed that there are discussions. According to a Bloomberg report, Carlyle would possibly offer $31.50 per share in cash - a deal that would be a decent one-third premium to CommScope's closing price on Friday. Interestingly enough, though, not only is that price not all that rich on a valuation basis, but it does not even match the company's 52-week high. (For related reading, check out Private Equity A Trendsetter For Stocks.)

Another Boom Underway?
That price might seem even more galling to those who buy into the idea that another boom-time in fiber is on the way. As companies like AT&T (NYSE:T), Verizon (NYSE:VZ), and France Telecom (NYSE:FTE) announce large-scale fiber build-outs, it stands to reason that demand should be pretty healthy in the coming years. By the same token, a lot of companies that boomed in the late 1990s during that fiber build-out ultimately went bust or got bought out by other firms. As a result, there are not all that many public companies that would stand to benefit from putting more fiber in the ground - though names like Emerson Electric (NYSE:EMR), Corning (NYSE:GLW), Prysmian and Amphenol (NYSE:APH) do come to mind. (For related reading, see Stock-Picking Strategies: Qualitative Analysis.)



Not Just About the Fiber
Truth be told, CommScope does not necessarily need another boom in fiber to be successful. The company also has a significant business in providing wireless infrastructure equipment, and there seems to be a perpetual build-and-upgrade cycle both in North America and developing economies like India and China. Along the same lines, investors looking to play this theme with more risk (and presumably more reward) might want to consider Powerwave (Nasdaq:PWAV), as this long-struggling supplier could also benefit from a sustained rebound in wireless build-outs.

The Bottom Line
The return of private equity buyers is a mixed blessing for investors, particularly those of the value persuasion. It is arguably comforting to know that there are additional sets of eyes out there looking for bargains, but it also leads to an old fear - "if you snooze, you lose". If private equity is again flush with cash and looking to buy, investors cannot assume that they just sit on bargain investment ideas for very long.

For CommScope, this bid would be a mixed blessing - the price is not terrible, but it is not so great as to be a slam dunk for its shareholders. Investors who believe that telcos and cable companies are in a lasting arms race to upgrade service and access may see the bid as inadequate, while others may be happy to book the quick profit. (For more, see Dial Up Choice Telecom Stocks.)

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