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Cbeyond's Search for 'Strategic Alternatives' Comes to Fruition, But Not in Sale to MegaPath

By Kelly Teal
April 21, 2014 - News

**Editor's Note: Please click here for Channel Partners' complete coverage of Birch's pending acquisition of Cbeyond.**

It wasn't MegaPath after all. It was Birch Communications.

Earlier this year, rumors swirled that cloud and network provider Cbeyond might sell to managed services provider MegaPath. Indeed, Cbeyond had stated in its most recent earnings report that it was evaluating “strategic alternatives," including acquisitions or a sale, after reporting a $5.3 million net loss in the third quarter of 2013 and losing 20 percent of its stock value in the past year.

But, as it turns out, Birch Communications on Monday announced itself as Cbeyond's buyer.

The deal marks Birch's largest acquisition to date. The Atlanta-based company, which has transformed itself from a regional, legacy reseller into a national provider of business cloud, communications and managed services, will pay $323 million in cash for Cbeyond, thanks to financing from PNC Capital Markets LLC and Jefferies Finance LLC. That's $301 million more than what Birch paid for Lightyear Network Solutions in 2013 – to that date, the largest of the publicly revealed transactions Birch had done. And, Birch said it will generate $700 million in annual revenue as a result of buying Cbeyond, which is also headquartered in Atlanta.

Cbeyond stockholders will get between $9.97 and $10 per share. The former price would represent a premium of 56.8 percent over Cbeyond's stock price on Nov. 5, 2013, the trade date before Cbeyond said it would explore alternatives; the latter would represent a premium of 40.8 percent over the closing price of Cbeyond's stock last Thursday, April 17, Birch said.

"After a thorough six-month strategic review process in which we evaluated a wide range of alternatives in addition to a sale, the Cbeyond board of directors determined that this all-cash transaction with Birch maximizes stockholder value through an attractive premium," said James Geiger, founder, board chairman and CEO of Cbeyond, in a prepared statement. "We have been strengthening the Cbeyond franchise with our 2.0 transformation; the wider reach with Birch enables the combined companies to increase service levels with a broad array of products to a larger number of customers."

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