Fusion will take over Birch’s cloud customers, operations, and infrastructure, and enhance Fusion’s strategy as a “single source for cloud,” the company said. The “single source” strategy consists of fully-integrated cloud solutions, delivered over a single platform, which Fusion said mitigates cloud migration challenges, provides more control over end-to-end user experience and eliminates “finger pointing” among service providers.
The combination is expected to result in cost savings bringing pro forma annual adjusted EBITDA to $150 million, significantly boosting Fusion’s free cash flow and reducing its leverage ratio to 4x debt to EBITDA.
“This acquisition is a major milestone in Fusion’s targeted and disruptive strategy of becoming the leading single-source cloud services provider to business and enterprise customers,” Matthew Rosen, Fusion’s Chief Executive Officer said. “Customers increasingly demand an end-to-end experience that is reliable as well as efficient and innovative. Fusion is well positioned to provide these services having been first-to-market to pursue this strategy, and can now do so with increased scale and resources.”
When complete, the acquisition will give Fusion a total of over 150,000 business customers, more than 800 distribution partners, and a 100 percent IP-based network with 31 data centers, 31,000 miles of fibre, and metro fiber assets in 11 major markets. It also creates an opportunity for cross-selling and upselling services to the combined customer base.
“This combination will immediately move Fusion into the top tier of cloud services providers and establishes a robust platform from which to pursue aggressive value enhancing initiatives through both organic growth and strategic acquisitions,” Rosen said. “By leveraging the significantly larger scale of Fusion following the acquisition, the company will gain new efficiencies and greater cash flows, which we believe will drive shareholder value. We also expect that the new Fusion will gain broader awareness among investors and analysts, along with expanded access to the capital markets, which will further support our compelling growth strategy.”
Birch’s legacy consumer and single-line business customers are not included in the acquisition.
The transaction values Fusion shares at $3.85, a 200 percent premium versus Friday’s closing price on the Nasdaq, and roughly 5x the EBITDA of Birch’s cloud business. The deal values the equity of the Cloud and Business Services business exchanged by Birch shareholders at approximately $280 million.