It was announced yesterday that Windstream (NasdaqGS: WIN) will acquire PAETEC (NasdaqGS: PAET) for $2.3 Billion. The transaction value is reported at approximately $2.3 billion which is estimated at 1.2x revenue and at 7.7x EBITA.
With this acquisition, Windstream becomes a national telecommunications provider generating a total of more than $6 billion in revenue, with enhanced capabilities in key strategic growth areas such as fiber, Ethernet, data centers and managed services.
This announcement follows a number of other strategic acquisitions in the industry this year including the recent acquisitions of SAVVIS Inc. by CenturyLink in July; Terremark Worldwide Inc. by Verizon in April: and OneNeck by TDS in July.
These are just three examples where consolidation is occurring in the telecommunications industry. We believe that this trend will continue as communications providers see new sources of revenue to supplement their residential and commercial landline business.
This could be just one step in a Windstream strategy that may include additional acquisitions to extend their service capabilities. What next? Some believe that they may acquire a data center/cloud services company to drive additional revenue by selling SaaS and PaaS services.
If they took this step, it could help align Windstream with other telecommunications companies who are buying data centers & managed services firms to expand their additional revenues in this area.
What are the chances that those acquisitions will be a success?
Two keys to the success of these transactions will be how effectively the acquiring company: (1) expands the traditional due diligence process to identify all the relevant key factors that will limit success and (2) develop and independently monitor a detailed comprehensive integration plan
As discussed in our recent position paper, Improving Your Chances for a Successful Merger or Acquisition, we believe that these two critical areas must be improved in most M&A transactions to increase the chances for success. . For further information, please read this position paper on our blog: http://josephbonocore.blogspot.com.
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