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"It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change."

-Charles Darwin

EarthLink to Acquire CenterBeam for $22 Million

martinwolf Analysis:
  • On June 17th, Atlanta-based EarthLink, Inc. (NASDAQ:ELNK) announced an agreement to acquire CenterBeam, Inc., a privately held IT Services provider, for $22 million. The acquisition is structured as an asset purchase. No other transaction details were disclosed.
  • The acquisition is the latest in a series of moves by EarthLink to transform from a pure Internet services provider to a provider of cloud computing and hosted IT services. The companies expect the acquisition to be completed in the third quarter of 2013. Earthlink Logo
  • Founded in 1994, EarthLink was one of the original dial-up Internet service providers, but has suffered in recent years from competition from higher speed Internet service providers such as cable companies. Beginning in 2010, CEO Rolla Huff began re-structuring the company to deliver higher value IT Services.
  • To accelerate this transition, Earthlink previously made seven other acquisitions of services and solutions providers:
    • ITC Deltacom  (October 2010)
    • One Communications (December 2010)
    • STS Telecom (March 2011)
    • LogicalSolutions.net (May 2011)
    • Business Vitals (August 2011)
    • xDefenders (January 2012)
    • IT Solution Center and cloud-based application business of Synergy Global Solutions (January 2012)
  • Also in 2012, EarthLink began expanding its network infrastructure by opening new data centers, most recently in Dallas and San Jose, bringing the number of data centers linked to its nationwide IP network to eight. California-based CenterBeam provides services to primarily mid-sized businesses through a 140-person IT support center.
  • EarthLink appears to have made considerable progress with its transition, although declining revenue growth in its legacy businesses has yet to be offset by growth in its new businesses. In EarthLink’s most recent investor presentation, prepared on May 3, 2013, the company pointed out that it was then valued at 4.7 times EBITDA, considerably below its peer group average of 8.4 times EBITDA.
  • EarthLink stock price at close of market yesterday was $6.25 per share, up from its 52-week low of $5.23 but down from its high during that same period of $7.62.
To view the press release, click here.

 

martinwolf was not the adviser in this transaction.

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