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Fusion Buying MegaPath, Gets Cloud, SD-WAN, ‘Robust’ Back Office

M&A

**Editor’s Note: Please click here for a recap of the biggest channel-impacting merger and acquisition news from March.**

Fusion continues to grow as a cloud service provider with the purchase of MegaPath.

MegaPath CEO Craig Young

MegaPath’s Craig Young

Fusion announced Thursday that it is acquiring the business communications provider for $71.5 million. The deal takes advantage of MegaPath’s SD-WAN, unified communications and security offerings and adds an estimated $70 million of annual revenue.

MegaPath also brings approximately 8,000 business customers into the fold and about 45 direct and indirect sales representatives. Fusion wrote in its announcement that it will gain a new stable of cloud-services professionals and a “robust” back-office platform.

MegaPath CEO Craig Young said the market for cloud services is rewarding single-source solutions.

“Fusion’s differentiated strategy, its high-quality integrated product suite and its scalable platform are therefore a natural fit with MegaPath’s business and culture,” Young said. “Our participation in the equity of Fusion through this transaction underscores our confidence that the combination of the two companies will create significant value for shareholders. Furthermore, our customers will continue to benefit from the same high levels of service quality, customer care and innovation from Fusion that they’ve come to expect from MegaPath.”

The deal is expected to be complete within 90 days.

The announcement comes three days after Fusion closed its purchase of Birch Communications. Landing Birch gave Fusion additional scale in North America, a broadened cloud portfolio and increased back-office support.

“Given the similarities between our businesses, we expect the MegaPath acquisition to facilitate the customer, operational and financial integration of Birch, enabling us to drive Fusion’s strategy more efficiently across the entire organization,” said Matthew Rosen, Fusion’s chairman and CEO.

Brian Washburn, practice leader of network transformation and cloud service for Ovum, has been familiar with the companies since MegaPath merged with Covad and Speakeasy in 2010. He tells Channel Partners that the MegaPath acquisition fits into Fusion’s series of opportunistic moves. Birch was comprised of numerous acquired service providers – including Cbeyond – when Fusion bought it.

Ovum's Brian Washburn

Ovum’s Brian Washburn

Washburn notes that Fusion-Birch and MegaPath both do voice and unified communications via Cisco’s BroadSoft platform.

“There is clearly a path to eliminate redundancy, reduce costs, and that way operate the business more competitively,” he said.

MegaPath divested its network services business unit and managed services business to Global Capacity and GTT Communications in 2014 and 2015, respectively.

“MegaPath is still quite a significant service provider in voice [and] UC, and it also continues to offer a range of business internet and network services,” Washburn said.

Rosen said Fusion aims to lead the cloud-services industry with a single-source strategy.

“MegaPath is an ideal fit with our strategic objectives as it adds a diverse, high-value business customer base, a team of cloud-services experts, and incremental financial scale, with a high percentage of MRR, high ARPU (average revenue per user) and low churn relative to industry averages,” he said.

How will this move impact channel partners for both companies? Washburn says it’s impossible to predict, but both companies have established channel programs.

“My sense is that Fusion would want to retain MegaPath’s channel relationships and build on them with its wider portfolio,” he said. “That desire to foster good channel relations will bump up against the push to consolidate personnel and operations.”


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