CenturyLink continues to make cloud plays with Tier 3 buy

Contact: Scott Denne Al Sadowski

CenturyLink continues to look to M&A as it expands its cloud business, this time reaching for Tier 3, a provider of cloud management software that will enable the acquirer to offer a complete set of outsourced IT services – from hosting to enterprise cloud. Terms of the deal weren’t disclosed, though we understand Tier 3 is on track to have just north of $10m in annual revenue.

The wireline telecom vendor expanded into the hosting and managed services business with its acquisitions of Qwest Communications and Savvis in 2011. Last summer, CenturyLink bought AppFog, an early-stage PaaS provider, and now is complementing that with the purchase of Tier 3, enabling it to sell production-ready IaaS (an offering it developed internally but will now migrate to the target’s technology).

CenturyLink is looking for those expanded capabilities to stem recent losses in its datacenter division. In its most recent quarter, the managed services business shrunk by $5m to $342m due to the faster-than-expected loss of colocation customers from Qwest. CenturyLink also took a $1.1bn impairment charge on goodwill related to its datacenter group to account for some overzealous growth expectations. Even its managed services business is moving slower than the industry average, growing about 15%. We project managed services to grow 21% this year.

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