Windstream to Buy Hosted Solutions in $310 Million Deal

Windstream Corp. of Little Rock on Thursday announced an all-cash deal to buy Hosted Solutions Acquisition of Raleigh, N.C., a move that will continue to expand the telecommunications firm's broadband business and data centers.

Hosted Solutions is a regional data center and managed hosting provider focused on the enterprise-class Infrastructure as a Service (IaaS) business.

The company has more than 600 customers and has about 125 employees.

Windstream (NYSE: WIN) said the acquisition will transform its data center business, increasing its scale and scope with data centers in Raleigh and Charlotte, N.C., and Boston. The deal adds 68,000-SF of data center capacity, giving Windstream 12 data centers across the country.

"Data center space is increasingly in demand among our existing business customers," Jeff Gardner, president and chief executive officer of Windstream, said in a news release. "Hosted Solutions is an excellent complement to our existing enterprise service portfolio. For the past decade, they have been delivering highly complex managed hosting solutions to customers of various sizes. In addition, they have a proven track record of growing revenue and generating significant free cash flow."

Windstream is purchasing the company from ABRY Partners of Boston, a private equity firm focused on media, communications and information services companies.

Also Thursday, Windstream said third-quarter earnings rose 6.5 percent on a revenue boost aided by its other recent acquisitions.

Potential for More Revenue

In its news release, Windstream said Hosted Solutions has potential for future revenue growth. It said the company only uses about 70 percent of its square feet capacity and 50 percent of its power capacity. It said the company has expansion ability at each of its centers.

Windstream said that for the 12 months ended Sept. 30, Hosted Solutions generated $51.7 million in revenue and $25.7 million in adjusted OIBDA, or operating income before depreciation and amortization.

The move is the latest in a series of acquisitions by Windstream in the last two years.

In July, it purchased Q-Comm of Overland Park, Kan., a privately held regional fiber transport and competitive local exchange carrier, in a $782 million deal. In June, it completed its acquisition of Iowa Telecommunications Services Inc., a $1.2 billion deal that allowed Windstream to expand into Iowa and Minnesota, adding about 256,000 access lines, about 95,000 high-speed Internet customers and about 26,000 digital TV customers.

Windstream is a spinoff of wireless company Alltel Corp., which was purchased by Verizon Wireless in 2008. Since 2008, Windstream, has held millions of dollars in cash for acquisitions, aggressively buying other companies to expand its footprint and its business and broadband offerings.

Windstream said it expects to finance the deal with existing liquidity in cash reserves and revolving credit. It said it will fully amortize the purchase price goodwill over 15 years, resulting in expected tax benefits with an estimated net present value of $52 million.

The Bank Street Group LLC and Stephens Inc. of Little Rock were financial advisers, and Kutak Rock LLP acted as legal advisors to Windstream.