Last year I started hearing that Birch's M&A run was coming to an end, that the necessary financials had begun to evaporate. Since the start of the year, however, I have heard things have taken an increasingly difficult turn, with multiple sources claiming that the company has been going through a series of layoffs and has been actively searching for a buyer.
Of all consolidators in the space over the last 10 years, only Birch has come close to matching Zayo in terms of raw number of transactions. The deals were smaller, of course, and focused on more traditional CLEC revenues and network infrastructure at the IP layer. The company's most recent purchase was the remaining business of Primus, giving them a foothold in Canada. But the biggest buy they made was for Cbeyond three years ago for $323M, which was followed by investments in metro dark fiber to fill out what had become a national voice and data footprint.
Birch has been looking to take the various declining legacy revenue streams it acquired, put them on a modern infrastructure with better scale, and transition everything into a cloud and managed services business. However, that path has proven to be rather tricky for most who have tried it. EarthLink, for example, had to regroup (painfully) several times in its efforts to do something similar, eventually selling to Windstream in a deal that closed recently.
It's hard to tell from the outside just what Birch's status is, but it does look to me like they might be next in line for a similar buyout. Who might the potential buyers be? Well that's the hard part. Windstream could be a possibility, but I'm not sure they are looking to take another bite just yet. Zayo has a measurable pile of such revenue now including some ovelap in Canada, but I think they'd need more fiber and colo infrastructure than Birch has to make it attractive to them (unless their plans evolve dramatically). GTT is certainly hungry, but this doesn't seem to match their customer profile.
That seems to leave private equity, which would require someone who thinks they have solved the CLEC->managed-cloud migration puzzle. Broadview, for instance, seems to have turned the corner on revenue and in the first three quarters of 2016 managed a small profit after laboring for years to stabilize things. Their owners, or others who have been watching and are ready to step in, might see an opportunity to replicate that success if the price is right.
Any other possibilities?
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