Birch Communications apparently found itself a rather large Easter egg over the weekend, announcing the purchase of Cbeyond this morning. It’s an all cash deal worth roughly $323M, with Cbeyond’s shareholders getting between $9.97 and $10.00 per share – a level they certainly haven’t seen in a while.
Cbeyond has been working on a transition from legacy voice and T-1 services to fiber and the cloud, but the hill ahead of them has been a steep one. They had been looking at strategic alternatives for the past couple of quarters, so a sale is not a surprise.
However, this is by a large margin the biggest deal Birch has put on the table. And with 21 acquisitions since 2006 it’s a pretty big table. But the idea of Birch acquiring Cbeyond isn’t totally out of the blue for Ramblings readers, as I had actually posited the idea in an article back in November.
The combination makes a lot of sense from a customer fit and product standpoint, and the assets are starting to build up for Birch. Upon completion of this deal, the combined company will have $700M in annualized revenue, 10,000 fiber route miles, 500 fiber-lit buildings, 570 central office colocations, and 5 data centers. They’ll also have national scope, whereas until now Birch’s focus had been mainly in the southeastern US.
The combination of Birch and Cbeyond creates better scale in geography, network assets, customer breadth, and product portfolio. Or at least it will, once they integrate it all. I expect this one will take a bit more work on the integration front than Birch’s past purchases. Birch’s most recent deals were for the assets of both Lightyear Network Solutions and Ernest Communications in 2013.
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