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Fusion Acquires MegaPath: Cloud Service Provider Valuation Revealed (Sort Of)

Fusion Connect has acquired MegaPath for $71.5 million. The deal’s valuation is roughly 1 times annual revenues or approximately 5 times pro forma adjusted EBITDA.

The EBITDA multiple is based on anticipated cost synergies within 12 months of the deal closing, rather than Megapath’s finalized figures from 2017, which are undisclosed.

Like many telecom companies, Fusion has been in evolution mode. The company was previously called Fusion Telecommunications International. More recently, the firm positions itself as a “single source cloud solution provider.”

MegaPath may aid in that transformation. An impressive 95 percent of MegaPath’s monthly revenues are recurring. The company generates about $70 million in annual revenue overall. Among the other business metrics that caught Fusion’s attention, MegaPath has:

  • more than 8,000 SMB and enterprise customers
  • average monthly revenue per customer (ARPU) of $750 and 1.0% monthly churn

Call it an educated guess, but we suspect the actual deal’s valuation is closer to 7X MegaPath’s 2017 EBITDA — or perhaps higher. Buyers prefer to reveal the lower valuation multiples, however, based on cost synergies that they’ll pursue once the deal is completed.

The Executives Say…

In a prepared statement, Fusion CEO Matthew Rosen said:

“This transaction is further evidence that Fusion is rapidly building a cloud services industry leader around our unique and compelling 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 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.”

MegaPath CEO Craig Young added:

“The Cloud Services market is recognizing the superior value of integrated solutions from a single-source provider. 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. 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.”

Fusion Acquires Birch Communications

Fusion has been in acquisition mode. The company last year acquired Birch Communications for $280 million. At the time, the combined businesses were set to span 150,000 business customers throughout the U.S. and Canada, and a 100 percent Internet-protocol-based network containing 30 data centers, 31,000 fiber route miles of network and metro fiber assets in 11 large markets, according to a press release from the company.  

Fusion is expected to announce its latest quarterly results on Tuesday May 15, 2018.

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