Could XO be on the M&A hunt?

With the all of the tier 2 service provider consolidation going on it's only a matter of time until major CLECs such as XO Communications will make their own M&A move. While XO has not announced any deals, the company's third-quarter earnings report intimated that it is considering "strategic investments." This revelation comes not long after tier two ILEC Windstream moved on fellow CLEC NuVox.

"We believe that certain opportunities exist today in the highly competitive CLEC industry that may not recur such as, but not limited to, the acquisition of other CLECs," XO said in its earnings release, and will "seek to raise appropriate levels of capital in the near future" to fund possible investments.

Of course, even if XO is going to make a move it will be faced with the obvious challenges of getting the money to fund a deal and then taking on new debt--two issues that might be too risky to make a major M&A move right now.

XO did not fare too poorly on the earnings side. During the third quarter, XO reported $19 million in Q3 09, which was attributed to the conversion of $16.3 million of securities into cash. What's more, XO's revenue rose $8.1 million to a total of $382 million. However, XO's revenue declined by $3.6 million from the second quarter of 2009. What contributed to the revenue decline was the ongoing migration from legacy TDM to IP-based services.

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