Birch Communications blossoms with $323m Cbeyond acquisition

Contact: Scott Denne

Birch Communications has moved out of tuck-in territory with its acquisition of Cbeyond, a network service provider that’s larger than Birch itself. Having existed in some form since 1996, Birch has grown through acquisitions, but most have been small customer or geographic expansions – nothing on the scale of its $323m purchase of Cbeyond.

The acquisition values Cbeyond at 0.7x its last 12 months revenue, and Birch expects the combined company to have about $700m in annual revenue, with Cbeyond contributing more than half the total. Prior to this deal, Birch had completed 21 acquisitions. Most of those were asset purchases, including the three deals it closed in 2013: Ernest Communications’ customers, Lightyear Network Solutions’ network and customer assets, and switching facilities in 10 states from Covista Communications.

In exchange for $323m, Birch gets a business that faces declining revenue in the face of shrinking margins and growing churn for its legacy network connectivity business. It also gets Cbeyond’s core mid-Atlantic network and the potential to expand deeper into cloud services – something Cbeyond had tried to do on its own, but the growth of that business couldn’t keep pace with the decline of its legacy offerings. Cbeyond’s annual revenue dropped 5% in 2013 to $463.4m, and it anticipated further declines, projecting 2014 revenue of $410m-430m.

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