Windstream purchases PAETEC
Deal Size: $2.3 billion
Why it's relevant? Windstream (Nasdaq: WIN), unlike its fellow Tier 2 ILECs, may have not pulled off ambitious deals like its fellows CenturyLink (NYSE: CTL) or Frontier Communications (NYSE: FTR) did with their respective purchases of Qwest and Verizon's rural lines, but the service provider is no less aggressive with M&A.
Following a string of smaller acquisitions of other regional ILECs and competitive carriers, including Iowa Telecommunications, NuVox and Q-Comm, the PAETEC acquisition is another step in the Tier 2 ILEC's drive to become a larger nationwide business provider.
The $2.3 billion deal, its largest to date, is further evidence of the consolidation of the independent telcos and CLECs, a key match that enables Windstream to enhance its revenue potential in the enterprise market.
By purchasing PAETEC, Windstream immediately became a large Fortune 500 competitor with the ability to serve business customers in 46 states and the District of Columbia and about 100,000 nationwide fiber route miles, which will bolster its wholesale capabilities for wireless operators and other service providers.
While gaining new network assets was relevant to Windstream, the key piece here is services. By acquiring PAETEC, Windstream enhanced its metro fiber, Ethernet, data centers and managed services portfolio.
In addition to a strong set of fiber assets, it gains PAETEC's far-reaching Ethernet over Copper (EoC) presence thanks to the latter's acquisition of Cavalier/Intellifiber and a set of public sector customers. Prior to the acquisition, PAETEC's EoC capabilities were available in 275 COs (central offices) delivering from 1-100 Mbps service and over 500 Department of Defense (DoD) customers in the public sector.
Of course, the integration of any company means some obvious trimming. Since closing the deal earlier this month, Windstream has announced layoffs at both the former PAETEC headquarters in Rochester, NY. while in the Richmond, Va. market it plans to discontinue offering new residential services.
Regardless of the changes it has to make to shore up its resources, having PAETEC under its belt gives Windstream new weapons to compete against other incumbents and the growing base of cable operators that are advancing into the large business market.