While skyrocketing inflation is a top economic storyline of 2022, it has been the rule for years in residential fiber optic networks. Valuations of companies that build fiber to homes have boomed, in part because international infrastructure funds that have typically invested in airports or toll roads have warmed to the business and are competing against sponsors in auctions.

“That new, very aggressive, huge pool of capital coming into the market has resulted in valuations for these businesses going from around 10 times Ebitda in 2016 to around 20 times in 2018, and today we’re seeing transactions at over 30 times Ebitda on a fairly regular basis,” Lazard Ltd. global co-head of telecommunications, media and entertainment Garrett Baker told The Deal.

Demand for broadband, improved economics and other factors convinced infrastructure funds that fiber-to-the-home is no Dogecoin or r/wallstreetbets meme stock.

Firms such as Macquarie Infrastructure Partners, Blackstone Infrastructure Partners and Antin Infrastructure Partners SAS have joined traditional broadband investors such as Searchlight Capital Partners LP, Oak Hill Capital Partners LP and KKR & Co. (KKR).

The infrastructure funds’ return expectations help drive valuations.

“Whereas a private equity fund would need to get 20% or 25% equity returns if they were going to buy a fiber to the home business, an infrastructure fund might only need to get 12% to 15%,“ Baker said. “Their ability to pay high valuations for these networks is dramatically higher because they have a lower equity return threshold.”

While the risk of a bubble may arise, the dry powder and reliance on high-speed broadband after the pandemic continue to fuel deals and set the scene for exits in the coming years.