Peer 1 acquires ServerBeach in bid to expand from pure-play collocation

Vancouver-based Peer 1 Networks Enterprises Inc. has acquired San Antonio TX-based ServerBeach Ltd. for $7.5 million, a purchase the company says will add significantly to its top and bottom lines while branching itself out from the pure-play colocation business. ServerBeach owns a data centre in Texas and more than 4,200 servers leased to end-users. The acquisition is expected to boost Peer 1’s monthly recurring revenue by 57% to over $2 million, and to add over $5 million in incremental EBITDA in the year ending June 2006. The price includes US$7.5 million in cash, a management services contract, and other bandwidth services. Peer 1 has arranged bridge financing for the cash portion of the purchase price from a company related to one of its directors, due Dec. 31, 2005 and with an interest rate of 6% per annum through that date, and 15% thereafter. The deal, says Peer 1 CEO Geoffrey Hampson, gives the company both a coveted network presence in San Antonio, as well as additional services beyond Peer 1’s simple colocation offerings and applications such as global network load balancing – though the company will remain focused on infrastructure, not the applications which run over the network. "We see ourselves as an infrastructure player, and up until now we’ve essentially offered bandwidth and colocation. Our customers have brought their own servers into our facilities. They’ve managed their own servers and used us for things like remote hands and feet. For instance, a company in Europe might send a server to us. We would install it for them and then if they needed to have a re-boot or something, they would call us up and we would provide them with those hands and feet on a remote basis so they could manage the server over the Internet. We see that the ServerBeach acquisition is kind of an extension of that infrastructure because we’re not going to be managing applications." The ServerBeach team will be retained, and Hampson says it’s likely that around four new staff might be hired in customer support and sales. The deal will see current Peer 1 customers migrated onto the ServerBeach facilities, and current ServerBeach customers offered a new choice of centres in which to locate their servers. The company has points of presence in Toronto, Vancouver, Montreal, London, New York, Los Angeles, Chicago, Ashburn NJ, Seattle and San Jose. The company will likely make similar acquisitions in the future. While facilities and companies are not as likely to be found at firesale prices as they were during the telecom bust, Peer 1 continues to be on the hunt for opportunities to expand its network to other centres, or to buy companies that present opportunities to exploit Peer 1’s existing network. For example, says Hampson, the greatest hurdle to a company such as ServerBeach is bandwidth costs, something that is no longer a concern since the company is owned by an infrastructure company. Further, he says that during due diligence, it was discovered that the two companies had overlapping customers. Those clients, Hampson says, will likely be offered discounts and savings for taking bundled services. As a result, the acquisition is being touted as a winning one for all parties. "On the dedicated server side of the business, I think we’re at the very early stages of that business and I think there’s a lot of growth potential there. I also see a lot of growth on the Peer 1 core business as we continue to fill our data centres and sell more bandwidth. One of the downsides of this business in the last year has been the slide in the price of bandwidth. So, for a lot of companies, you have to run three times as fast just to stay in place because the more bandwidth you sell, the more your existing customers want discounts. But, this is a great application for us because it’s a bit of a captive audience. And, a lot of the servers are sold with a fixed amount of bandwidth. So, it really leverages our network and is going to help to maintain our profit margins."

Peer 1 acquires ServerBeach in bid to expand from pure-play collocation

News | 10/14/2004 4:00 am EDT

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