Windstream maintains acquisition pace with Q-Comm buy

Windstream Communications, the rural telco consolidator that thus far has balked at huge mergers in favor of smaller acquisitions, is set to buy another regional network operator, Q-Comm, in a $782 million transaction that includes stock, cash and a $267 million debt repayment. Key to the deal are Q-Comm subsidiaries Kentucky Data Link, a fiber network operator, and Norlight, a CLEC.

The acquisition comes less than a year after Windstream’s purchases of rural ILEC Iowa Telecom and CLEC NuVox and seems to follow with Windstream’s ongoing efforts to become an RLEC/CLEC hybrid that can offset residential landline market pressures with enterprise and wireless backhaul revenue. Windstream also bought RLEC D&E Communications in the first half of 2009 and acquired CT Communications in 2007.

Bernie Arnason, managing director for Pivot Media, said the Q-Comm deal fits right in with Windstream’s established acquisition pattern. “It does fit with that ongoing strategy,” he said. “In addition, KDL's wireless backhaul business looked to be attractive to Windstream. Since they lack their own wireless network, they are looking for ways to leverage fiber and wireline assets for wireless business. Adding KDL helps in this regard.”

Wireless backhaul in particular seems to be a key focus for Windstream this year. The company announced a backhaul-driven network investment this past January.

KDL operates as a fiber service provider in 22 states, mostly in the central U.S., from Wisconsin and Michigan in the North all the way down to the Gulf Coast in the South and reaching into Virginia in the East. Norlight’s CLEC markets are primarily clustered in the Midwest, KDL already serves many wireline and wireless carriers, as well as large enterprise verticals and government accounts. Norlight is more focused on small- and medium-sized businesses, with about 5500 such clients. Both Q-Comm units operate out of Evansville, Ind.

The acquisition is expected to close in the fourth quarter. To pay for the deal, Windstream plans to issue more than 20 million common shares valued at $237 million based on Windstream’s closing share price on Aug. 17 of $11.49, along with paying about $278 million in cash consideration for outstanding equity interests in Q-Comm, and it will repay about $267 million in Q-Comm debt, net of cash acquired.

Windstream has joined companies such as CenturyLink, Frontier Communications and FairPoint Communications in leading the consolidation of the Tier 2 and Tier 3 telco market. In fact, the Little Rock, Ark., company has completed more deals in the last three years than those other telcos, but it has stayed away from the massive mergers and acquisitions that have marked the evolutions of those other firms.

Arnason said it’s still too early to tell if Windstream’s conservative methods will lead to better results in the long term than larger, riskier bets. He added that he isn’t so sure Windstream won’t do a bigger deal sometime in the future. “I don't rule out a larger merger [or] acquisition for them,” Arnason said. “They clearly have a strategy to identify and acquire strategic assets to help them diversify and build scale.”