PAETEC to Grow Yet Larger Through McLeodUSA Deal

Folks thought something was awry when McLeodUSA Inc.s silent period leading to what wouldve been its second IPO dragged on for months. Then news came today that the privately-owned CLEC is to be bought by PAETEC Holding Corp. in an all-stock merger worth $557 million.

The deal, which consists of $492 million in PAETEC common stock and $65 million in net debt assumption, gives PAETEC significant new fiber optic network assets and a footprint spanning 18 states.

McLeodUSA provides affordable, flexible and reliable integrated voice and data services to SMBs throughout the Midwest, Rocky Mountain, Southwest and Northwest regions.

The new company will be one of the largest nationwide competitive service providers targeting business customers. It follows a pattern of consolidation in the CLEC sector and for that matter the service provider space at large — that has also seen Integra Telecom buy Eschelon Telecom and PAETEC last year purchase US LEC, more than doubling the companys revenues and transforming PAETEC into a company with more than $1 billion in sales revenue. Read more about PAETEC in the April 07 issue of xchange.

PAETEC and Integra have over time done several acquisitions each in their moves to become nationwide providers. For example, Integra several years ago bought Electric Lightwave, among others. And PAETEC a couple years ago also acquired firms American Long Lines and in 2000 snapped up as design and professional services outfits Data Voice Networks Inc. and Pinnacle Software Corp. 

According to book recently written by its CEO Arunas Chesonic, nine-year-old PAETEC has been able to grow more rapidly than superstars like MCI, before Verizon merged with it, and even more dramatically than famous startups outside telecom, like Dell and Amazon.

From its launch date in 1998 to 2002, PAETEC grew roughly 192,000 percent. Even if you dont include the companys first two incredible years of growth, the companys overall growth rate is 250 percent, with growth in the 11 to 13 percent in the last couple of years.

PAETEC targets underserved enterprises, mid sized outfits as well as small segments of businesses with personalized solutions that include VoIP delivered over its Private-IP MPLS network. Its customer list includes such names as Duke, Georgetown and Princeton universities; Fidelity Investments, Gateway Funding and JPMorganChase; Hilton; Linksys/Cisco and thousands of others.

McLeod USA


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