PaeTec makes $44 million acquisition

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PaeTec Communications Inc. this week signed a deal to acquire a Michigan company for $44 million.
The Perinton-based firm expects to close on the deal to acquire Campuslink Communications Systems Inc. in September. The two companies signed a definitive agreement.
The non-cash transaction involved a combination of stock and assumption of Campuslink’s debt.
Campuslink is expected to generate $20 million in revenues this year, said Arunas Chesonis, PaeTec chairman and CEO. Once its traffic moves to PaeTec’s network, however, that figure is expected to grow to $25 million.
All 54 employees, many based at Campuslink headquarters in Ann Arbor, Mich., are expected to join the fast-growing PaeTec. The acquisition will push the 13-month-old company’s work force to more than 330 employees.
Campuslink is a leading provider of telecommunications services–voice, data, video and Internet–to the higher education market. Its customers include more than 50 colleges, universities and private housing complexes nationwide.
“This is a very good acquisition to attack the university and the apartment-building market. It is a fairly lucrative area with long-term contracts,” said Chesonis, a former ACC Corp. president.
Now part of AT&T Corp., ACC was a leader in the college and university market.
“Campuslink and ACC used to go head-to-head,” he said.
Robert Schwartz, Campuslink’s president and chief operating officer, will continue to run the business. PaeTec plans to retain the Campuslink name because of its reputation among educational institutions, Chesonis said.
It has not been determined yet whether Campuslink will operate as a separate unit or be integrated into PaeTec.
PaeTec–which had two people dedicated to the business–has 10 university customers, including Nazareth College of Rochester.
“Our (operation) is in its early days,” Chesonis said. “With these folks, we will leapfrog (competitors).”
Campuslink ranks among the top 10 in the higher education market, with New York, Massachusetts and Florida ranking as its strongest geographic regions.
In addition to being a highly profitable and stable segment, the university and college business is considered an excellent way to make inroads into new markets.
Campuslink CEO Joseph Golden also will head PaeTec Data, its new data business targeted for launch in early 2000. Campuslink provides 25,000 students nationwide with high-speed Internet access.
Before joining Campuslink, Golden had worked for Electronic Data Systems, where he served as a vice president. He also worked at AT&T Corp.
“He would be (the) strongest part of our team in terms of data,” Chesonis said. “We will really be building the data business after the first of the year.”
PaeTec Communications, which raised $28 million in a private placement completed earlier this month, plans to obtain up to $200 million through a high-yield debt offering expected to close in September.
The debt offering is expected to fund expansion through the end of 2000, including additional switches in Central Florida and San Francisco, the new company and acquisitions, said Tim Bancroft, PaeTec’s vice president of finance.
The $150 million to $200 million in debt financing will fund expansion, PaeTec’s e-commerce business and acquisitions.
The Campuslink deal requires the approval of public service commissions in each state where the Michigan company operates.
The purchase is the second for PaeTec. Chesonis expects as many as nine more acquisitions in the next 18 months.

6/11/99