The merger of Covad Communications and MegaPath Inc. will benefit agents if, together, the companies continue putting resources toward the channel. But if the deal, announced March 31, falls prey to cost-cutting measures – the kind for which Covad owner Platinum Equity is known – then the outcome would not be so rosy. The chances of a negative result, though, look slim. The transaction is structured as a union, not a takeover. That means the board must make collaborative decisions. In addition, Covad’s business model focuses on access. And MegaPath will layer its in-demand managed services on top of that nationwide footprint. So, sources say, if the two make the most of each other’s strengths, and minimize weaknesses, they’ll bring serious heft to the competitive service provider community – and to agents.
On the last day of March, Covad and MegaPath said they’ll become one organization as soon as they secure all of the necessary regulatory approvals, which they hope to have by the third quarter. They did not divulge the financial details, since both are owned by private investors: Platinum Equity runs Covad and MegaPath’s backers consist of financiers well known in the telecom sector, including Columbia Capital, Fidelity Ventures and U.S. Venture Partners. Covad’s revenue stats are hard to pin down; however, according to Inc. Magazine, MegaPath raked in $151 million in sales in 2008. In terms of reach, Covad boasts more than 4,400 central offices and MegaPath claims more than 19,000 direct SMB and enterprise customers. Working with each other, they’ll forge what they call a managed services LEC, one that agents’ SMB clients should find appealing.
‘One of the More Interesting Deals’
“This is definitely one of the more interesting deals of the past six months,” said Brian Washburn, network services research director of Current Analysis.
Master agents agreed. Over at Telarus Inc., president and CEO Adam Edwards said he’s excited about Covad and MegaPath joining forces. “Together they create efficiencies and are a much stronger company, which we're always happy to see in our carrier partners,” said Edwards, whose agency continues to rank as a top MegaPath sales source. Plus, from a channel perspective, he said, MegaPath has done a great job renewing and improving its program.
“As long as the combined company continues to put resources behind the current MegaPath channel momentum, I think it’s a win for agents,” Edwards said.
That seemed to be the consensus among Edwards’ peers. MegaPath “went through some changes a couple of years ago and now it’s back on track,” said Jay Bradley, president of telecom services at Intelisys Corp. Covad and MegaPath “will make a stronger play, a bigger presence in the channel. I believe the market drivers for those two companies are just outstanding — nobody can get enough bandwidth right now, even in down economic times.”
