Fusion Announces Definitive Agreement to Acquire Birch Communications' Cloud and Business Services Business

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  • Fusion to acquire Birch's Cloud and Business Services business, including its customers, operations and infrastructure
  • Combined company is expected to have total pro forma annual revenue of approximately $575 million and more than $150 million in pro forma annual adjusted EBITDA, including anticipated cost synergies
  • Transaction is expected to be significantly accretive to Fusion's adjusted EBITDA immediately upon closing, generating positive free cash flow while dramatically reducing the company's overall leverage ratio, with net debt expected to be less than 4.0x pro forma adjusted EBITDA
  • Birch shareholders will exchange their equity position in Birch's Cloud and Business Services business, valued at approximately $280 million, for common equity of the combined company
  • All-stock transaction in which Birch shareholders will receive approximately 73 million common shares of Fusion valued at $3.85 per share, a premium of more than 200% versus the prior trading day's closing price, representing approximately 5x the pro forma adjusted EBITDA of Birch's Cloud and Business Services business including anticipated synergies
  • Combined company will serve more than 150,000 business customers throughout the United States and Canada, and will have strong distribution through direct sales, inside sales and more than 800 distribution partners
  • Significant opportunities for growth through cross-selling and upselling new services into the combined customer base

Fusion (NASDAQ: FSNN), a leading cloud services provider, announced today that it has entered into a definitive agreement to acquire the Cloud and Business Services customers, operations and infrastructure of privately-held Birch Communications, which represents the majority of Birch's current revenues. The transaction is expected to close by the end of 2017, subject to customary approvals and closing conditions.

The combination is expected to create one of the largest cloud services providers in North America, with more than 150,000 business customers and a 100% Internet Protocol-based network, including 30 data centers, 31,000 fiber route-miles of network, and metro fiber assets in 11 major markets. The combined customer base is expected to demonstrate strong fundamentals, with monthly recurring revenue comprising approximately 87% of total revenue. In addition, the combined company will have significant opportunities for growth by cross-selling and upselling to existing customers with a comprehensive suite of cloud and business services.

The acquisition will not include Birch's legacy consumer and single-line business customers, which have lower profitability and Average Revenue Per Customer (ARPU) as well as higher churn rates.

The scale that this acquisition will bring to Fusion further accelerates the company's single-source cloud strategy. By delivering its fully integrated cloud solutions over a single platform, Fusion is able to solve the increasingly complex challenges of migrating to the cloud. Fusion offers customers a more efficient integration of cloud services and provides greater control over the end-to-end user experience, thereby avoiding the "finger pointing" often encountered when using multiple service providers.

"This acquisition is a major milestone in Fusion's targeted and disruptive strategy of becoming the leading single-source cloud services provider to business and enterprise customers," said Matthew Rosen, Fusion's Chief Executive Officer. "Customers increasingly demand an end-to-end experience that is reliable as well as efficient and innovative. Fusion is well positioned to provide these services having been first-to-market to pursue this strategy, and can now do so with increased scale and resources."

Mr. Rosen continued, "This combination will immediately move Fusion into the top tier of cloud services providers and establishes a robust platform from which to pursue aggressive value enhancing initiatives through both organic growth and strategic acquisitions. By leveraging the significantly larger scale of Fusion following the acquisition, the company will gain new efficiencies and greater cash flows, which we believe will drive shareholder value. We also expect that the new Fusion will gain broader awareness among investors and analysts, along with expanded access to the capital markets, which will further support our compelling growth strategy."

Vincent Oddo, Chief Executive Officer of Birch Equity Partners, said, "Matthew Rosen and his team have a unique and compelling strategy for addressing the challenges that so many businesses face when migrating to the cloud. Time and again, Fusion has demonstrated its ability to deliver innovative and integrated customer solutions, firmly establishing the company as the ideal partner for Birch. We are confident that the combination of our two companies will create significant value for our customers and all stakeholders."

Mr. Oddo continued, "Our common vision for the future, commitment to service excellence and culture of innovation provide a great foundation for the integration of our teams and our ability to attract customers with compelling cloud-based solutions. We are excited to participate in Fusion's ongoing success as shareholders in the combined company."

Additional Transaction Details

  • Under the terms of the merger agreement, which has been approved by the boards of directors of both companies, Birch shareholders will receive, for all issued and outstanding shares of Birch common stock, the right to receive, in the aggregate, shares of Fusion common stock equal to three times the total number of issued and outstanding shares of Fusion common stock immediately prior to the merger (assuming conversion of all Fusion preferred stock into common stock and in-the-money warrants, but excluding current outstanding options), resulting in 25% pro forma ownership by Fusion shareholders and 75% pro forma ownership by Birch shareholders
  • It is currently estimated that approximately 73 million common shares of Fusion will be issued in connection with this transaction, valued at $3.85 per share
  • Fusion will assume Birch's existing debt of approximately $458 million, which is expected to be refinanced along with Fusion's existing debt
  • Matthew Rosen, Chief Executive Officer of Fusion, will serve as CEO of the combined company and will assume the role of Chairman of the Board upon the close of the transaction
  • Fusion and Birch shareholders will each appoint four directors to the combined company's Board, with a ninth director to be nominated by Birch shareholders with Fusion's prior approval
  • The transaction contemplates over $20 million of cost synergies which are expected to be achieved within 12 months of closing
  • The combined company expects that it will continue to be listed on the Nasdaq Capital Market and trade under the Fusion name and symbol (FSNN)
  • All members of Fusion's Board of Directors have signed a support agreement to vote their aggregate 10.5% interest in favor of the transaction

The transaction is subject to shareholder approvals and the satisfaction of certain closing conditions including the receipt of required regulatory and antitrust approvals and financing for the transaction, as well as other customary closing conditions.

Fusion is subject to customary restrictions on its ability to solicit alternative acquisition proposals from third parties and to provide information to, and participate in discussions and engage in negotiations with, third parties regarding alternative acquisition proposals. However, prior to the receipt of the necessary stockholder approval, such solicitation restrictions are subject to a customary "fiduciary out" provision that allows Fusion, under certain specified circumstances, to provide information to, and participate in discussions and engage in negotiations with, third parties with respect to alternative acquisition proposals if its Board of Directors determines in good faith (after consultation with its financial advisor and outside legal counsel) that such alternative acquisition proposal either constitutes a superior proposal or is reasonably likely to result in a superior proposal and the failure to explore the alternative acquisition proposal would be inconsistent with the directors' fiduciary duties pursuant to applicable law.


Greenberg Traurig LLP is serving as M&A legal advisor and Kelley Drye & Warren LLP is serving as special regulatory counsel to Fusion. FTI Consulting is serving as financial advisor to Fusion and has rendered a fairness opinion to Fusion's Board of Directors and its shareholders. Moelis & Co. is serving as financial advisor to Birch. Jones Day is serving as M&A legal advisor and Cahill Gordon & Reindell LLP is serving as special regulatory counsel to Birch.