Scott Baker, Oak Hill Capital
Fiber-to-the-home is drawing in new investors, creating more opportunities for deals in the sector.
“As FTTH assets have matured and grown larger and more proven, large infrastructure funds have become more attracted to this scale,” Scott Baker, managing partner at Oak Hill Capital, told PE Hub. “And now, a major mega trend that has developed over the last two years is that there has been a great deal of strategic interest in FTTH as well.”
In July, Oak Hill and the Cinelli Family sold Metronet to T-Mobile and KKR. Oak Hill reinvested in Metronet as part of the deal. Based in Evansville, Indiana, Metronet is a provider of high-speed fiber internet, television and phone services.
PE Hub caught up with Baker to learn how the New York-based PE firm discovered Metronet, and its strategy to grow the business before its exit.
Oak Hill first met the Cinelli family in 2010, when the family sold Kentucky Data Link, a metro commercial fiber business. Oak Hill was one of the final bidders but lost to Windstream, which purchased KDL along with parent company Q-Comm. The Cinelli family also had Metronet, which was founded in 2005. The business was in 60,000 homes when the two parties first met.
Oak Hill spent four years with the Cinelli family, from 2010-14, trying to convince them that “the business could be scaled and be much bigger, that if they would take some capital from us and partner with us, they could make more money owning part of the business with us than they could just going on their own,” Baker said.
“We spent four years on the business plan and proof of concept. By 2014, we had assisted them in refining their model while they built some more homes to test the thesis.”
Oak Hill initially invested in 2014 as the lead outside shareholder, with the Cinelli family retaining a majority stake. Over time, Oak Hill’s investment grew, with the firm having joint control of Metronet along with the Cinelli family, making Oak Hill the economic majority shareholder. In 2021, Metronet was recapitalized, with KKR joining as an investor. After the recap, Oak Hill was still the largest shareholder in Metronet.
Building up
Ninety percent of Metronet’s network expansion came from organic growth during Oak Hill’s hold. Metronet grew from 88,000 residential and business locations to 2.7 million (an increase of 2.6 million).
The organic growth strategy began with establishing criteria to select new markets for expansion.
The next steps were optimizing the network design for cost efficiency and developing a construction strategy to build cheaply while scaling across multiple geographies. When Oak Hill first connected with Metronet, the company served 10 small towns in Indiana. Today, Metronet operates in more than 300 communities across 19 states.
Oak Hill’s strategy for Metronet continued with designing and implementing a marketing playbook, developing direct sales techniques like the door-to-door strategy and building out a sales force.
Finally, the firm focused on refining all processes for basic operations, including installations, customer service and back office. Oak Hill, the Cinelli family and Metronet also recruited executives, directors and team members to execute all of these initiatives.
There was also an M&A strategy involved, with Metronet making eight add-on deals that represented the rest of the growth.
“The benefit of Metronet’s acquisitions, in many cases, was that they brought the company into new regions and new states. These acquisitions provided Metronet with small beachheads or platforms from which the company could then build and add scale.”
Serving growing demand
Oak Hill has been active in FTTH with seven current platform investments from 10 different deals. The seven platform companies reach about 4.5 million homes in the US.
“On a combined basis, Oak Hill’s FTTH portfolio companies built more than a million homes in 2024 and have presence in 34 states with active fiber networks,” Baker said. “Based on our data, we believe that this represents one of the largest residential builders of fiber in the country.”
Oak Hill has made 19 FTTH investments in the last decade-plus. “We believe that demand for broadband internet is non-cyclical and is benefiting from multiple secular trends and the adoption of new technologies,” Baker added. “We also believe internet traffic is growing every day, and FTTH, in particular, is growing as a means to serve this demand.”
Baker added that it costs a lot to build these networks and creates high barriers to entry, which favors legacy providers. As FTTH networks are completed, market economics typically support just two or three competing wireline broadband players. Established businesses in the sector can then potentially generate recurring revenues, high cash flows and high margins.