The move marks is part of a wave of consolidation taking place in the sector, as it strives to take on larger players.
As per sources familiar with the matter at hand, New York-based Fusion Telecommunications International Inc, which has a market capitalization of $27.8 million is set to acquire the cloud and business services unit of Birch Communications in a deal that will see the worth of the combined company to $950 million, including debt.
The deal is significant since it will create one of the largest North American cloud services providers in the world, with more than 150,000 business customers, 30 data centers and 31,000 miles of fiber optic network.
Incidentally, Birch’s cloud and business services unit represents the greater portion of its revenue, but does not include its legacy, less profitable, consumer business, said sources.
The deal sees Fusion paying Birch with its own stock.
Birch’s shareholders, led by Birch Equity Partners LLC, a private equity firm which has a majority stake in the company, will get around 73 million Fusion shares which are collectively worth around $281 million or $3.85 per share. This represents a premium of more than 200% compared to Friday’s closing price, said sources.
The deal also sees Fusion assuming Birch’s existing debt of $458 million, which it will refinance together with its own debt of about $101 million, said sources.
As a result of the deal, Fusion’s shareholders will own 25% of the combined company, while Birch’s shareholders will own 75%, said the sources.
The combined company will be headed by Fusion’s chief executive, Matthew Rosen, who will also be its chairman, said sources.
Sources have preferred the cover of anonymity since the matter is yet to be made public and is thus confidential.
Fusion declined to comment while Birch could not be immediately reached for comment.
The merger is the latest example of the consolidation taking place in the business communications sector, with small vendors, including Fusion, taking on their larger peers, such as Verizon Communications and AT&T Inc, by bundling value added services such as integrated data, voice, and cloud services.
As part of the consolidation taking place in this sector, one of the biggest deal of CenturyLink’s $24 billion acquisition of Level 3 Communications, is still awaiting regulatory approval.