As part of its Q3 report today, Cbeyond says it has formed a strategy committee that will evaluate both ways to accelerate its transformation and possible strategic alternatives. The possible alternatives could include M&A as either a buyer or seller and other strategic arrangements.
So what sort of consolidation event might Cbeyond wind up in? Let’s ramble on a bit… The company’s valuation remains quite low at less than 3xEBITDA, which means an expanded pool of potential buyers.
Perhaps a network operator with national tier 1 scope and cloud-based designs on the SMB enterprise space might see a chance to move $450M+ in revenue on-net while gaining the cloud-based managed service product suite at the same time. No, I’m not thinking Zayo, it doesn’t fit that mold. I’m thinking of someone more like Windstream or Earthlink, or, come to think of it, Comcast or TW Cable.
tw telecom or Level 3 could make sense I suppose, but I don’t think either is looking for this sort of asset right now. But another idea could be Birch, which could use it as a chance to gain true national scale and back into a public listing all at once.
It’s a bit harder for me to see Cbeyond making a big move as a buyer given their current valuation, although I’d be interested to hear of any ideas readers may have on that side. They do have the benefit of having no long term debt on the balance sheet right now, so they could take on leverage for the right opportunity.
As for Q3 earnings themselves, Cbeyond’s revenue came in light at $113.7M, with its legacy revenues pressured as its 2.0 revenues reached $17.8M. EBITDA dropped to $18.0M, while loss per share fell to $0.18 although that included a one time charge of $0.07 related to a fiber settlement. These transformations certainly don’t happen quickly.
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Categories: CLEC · Mergers and Acquisitions
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Earthlink CEO was pretty negative toward the CLEC space, but said in their Q2 conference call they would consider buying another CLEC at 2x EBITDA. CBEY is at what, 2.25x EBITDA after the 10% drop today? I bet there are some players interested.
Also having low debt levels probably helps up the interest of an acquirer.
XO is the deal maker.
Any potential buyout of Cbeyond will never end up being executed. The moment the prospective buyer dives into Cbeyond’s risks associated with it’s internal accounting practices, they will move on quickly. Also, they have extremely high litigation risks that they are trying desperately to mask from the public eye. They have many employment lawsuits, fraud lawsuits alleged from their current and past customers, and severely risky FCC violations that are highly damaging that are in the works. If you do your homework/investigating on all of this, you can find a lot of this in plain view.
I predicted to a tier 2 tech about 8 months ago that the lack of customer service was an indication that Cbeyond was getting ready to sell. The decreased customer support, finger pointing and literally weeks to months of rectifying problems for customer or giving refunds for what was documented as their programming errors was similar to Ameritech / SBC prior to their sales to other companies. The Tier 2 tech said “you are very astute”.
I was a top sales rep at Cbeyond for nearly six years. This company has been going downhill for a few years straight. It’s a combination of poor leadership and outdated internet options. They could’ve stopped the bleeding. But instead they tried to reinvent themselves while letting their revenue generating customers leave. Too little too late….
A sales rep for 6 years? come on -NO ONE stays in sales there for 6 years. They are shown the door after two or three. Or they leave on their own. There is usually one or two clever sheep that finds the cards of several people that have been there a year or two and are gone. Cbeyond was a revolving door. And the secret policy was- don’t upset the minorities or the big black HR mgr will terminate you for any little customer calling in to complain about the service they got. Glad Birch cleared out those racist A holes. Felt like damn AFRICA in there.