Moody's Investors Service described Windstream’s recent agreement to purchase Broadview as a positive move for the company, and the firm said that it expects Windstream to continue to “target companies in transition whereby they can leverage a target's growth business while extracting synergies and harvesting cash from legacy operations.”
In a release from the investment ratings firm, Moody's said that Windstream’s purchase of Broadview Networks “is positive but will not immediately impact the company's ratings, including its B1 corporate family rating, or negative outlook.”
Windstream said yesterday it reached a $228 million agreement to acquire regional competitive provider Broadview Networks, a move Windstream said would enhance its unified communications (UC) solutions for small and medium business (SMB) customers. The transaction for Windstream is smaller when compared with that of EarthLink, which Windstream only recently completed, but Windstream said its Broadview deal will give it more cloud capabilities in markets that prefer managed solutions.
In its assessment of the deal, Moody’s largely agreed. “Windstream may also pursue cross-selling opportunities by offering Broadview's suite of cloud products to its existing SMB and enterprise customers,” Moody’s said in its release. “This strategy is similar to part of the growth plan related to the acquisition of EarthLink Holdings Corp. The acquisitions of EarthLink and Broadview reinforce Windstream's strategic direction that is focused on scalable managed services for enterprise that have large addressable markets.”
Moody’s added that Broadview has enjoyed double-digit growth in its cloud business. “Further, higher-margin, next-generation services such as UCaaS are becoming a larger part of Broadview's revenue mix resulting in EBITDA growth. Given the low capital intensity of the business, Broadview was able to generate positive free cash flow positive in 2016,” the firm said.
Windstream said it expects to realize approximately $30 million in annual operating synergies within two years of completing the acquisition of Broadview. Windstream said it also expects the Broadview purchase will improve its balance sheet by reducing leverage through realization of synergies and will be accretive to free cash flow in the first year.
Windstream provides services to 48 states. The company is a pure-play wireline operator created from the merger of Alltel’s wireline operations and Valor Communications Group in 2006.