Fusion (NASDAQ: FSNN) says it has signed a definitive agreement to buy privately held fellow cloud services provider MegaPath Holding Corp. The transaction carries a total consideration of $71.5 million, which Fusion says equates to under 5.0X pro forma adjusted EBITDA, including anticipated cost synergies realized within 12 months of closing.
As much as $10 million of the total consideration is payable at Fusion's election in unregistered shares of Fusion common stock priced at $5.78 per share. Fusion says it plans to fund the consideration's cash portion through borrowings under its first lien senior secured credit facility, of which $62 million is held in escrow for this acquisition.
According to Fusion, the deal contributes additional financial scale with almost $70 million in annual revenue, of which 95% comprises contracted monthly recurring revenue, and adjusted EBITDA of approximately $15 million including anticipated cost synergies. Over 8,000 small and medium business and large enterprise customers will be added because of the acquisition, with an average monthly revenue per customer (ARPU) of $750. Expected to close within the next 90 days, the deal is subject to receipt of certain regulatory approvals and other customary closing conditions.
MegaPath is based out of Pleasanton, CA, and offers unified communications as a service (UCaaS), cloud computing and connectivity, security, SD-WAN, and a fully integrated suite of cloud services. Delivering a customizable, highly scalable back office/OSS platform to support the demands of enterprise customers, the acquisition of MegaPath adds about 45 quota-bearing sales representatives throughout direct and indirect sales channels, and several distribution partners as well.
"This transaction is further evidence that Fusion is rapidly building a cloud services industry leader around our unique and compelling single-source strategy," said Matthew Rosen, Fusion's chairman and CEO. "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 and low churn relative to industry averages. 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."
Last August, Fusion purchased the Cloud and Business Services customers, operations, and infrastructure of privately held Birch Communications (see "Fusion to buy cloud and business services business from Birch Communications for $280 million").
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