Primus To Buy Arbinet

Two companies that haven’t really been on my radar made M&A news yesterday.  pmug will be buying arbx in an all stock transaction valued at about $28M.  The purchase will add some $300M+ in annual revenues to Primus’s $800M, bringing their total annual revenues to above $1B and that of their wholesale division to more than $500M.

Of course, by the nature of the business they are in, Arbinet’s revenues have very low gross margin usually in the neighborhood of 5% – so talking revenue doesn’t really help much.  What they bring to the table is scale of operations, which Primus hopes will give its wholesale group sufficient boost to change its fortunes.  They expect to generate synergies of $3-7M in each of the next two years from the transaction.

Arbinet has struggled for years, as the wholesale IP transit and interconnection business has shifted away from that which they originally based their business model on.  While their revenue seems to have stabilized, plans for forward progress have been hard to come by.  Thus, a sale doesn’t surprise me at all.

That it is Primus doing the buying… well, I didn’t figure on that one.  Primus has had its own problems over the past few years, not the least of which is a low cash balance of $34M.  They have new management which seems to be operating with a turnaround plan.  The purchase of Arbinet is just one item on their to-do list, they also are also in the process of selling non-core retail businesses over in Europe and evaluating other strategic moves.  Perhaps when the dust settles they will emerge strong again, but personally my guess is that Primus itself will be bought at some point in the next few years.

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Categories: Mergers and Acquisitions