AstroTel Settles Up With Verizon Post-Close

Birch Communications has closed on its 14th acquisition since 2006, and its second consecutive deal involving a property operating in Chapter 11. The Atlanta, Georgia-based CLEC and managed services provider announced on April 11 that it had completed its acquisition of the operating assets of AstroTel, a Bradenton, Florida-based CLEC.  Birch paid $750,000 cash for AstroTel’s IP-based network that spans Florida’s West Coast, its telephone customers and associated account receivables. 

Birch purchased AstroTel from Mike Ray, who owned 100 percent of the twelve-year old company.  Ray had been operating the company in bankruptcy since early 2011. According to its Chapter 11 filings, AstroTel maintained only $325k in assets and around $675k in liabilities at the time it declared bankruptcy, with $539k of the liabilities associated with an arbitration claim owed to Verizon Florida, LLC.

The funds due to Verizon were disputed costs that Verizon had charged AstroTel through the telcos’ interconnection agreement; Verizon is the ILEC in AstroTel’s service area.  After losing its arbitration case, AstroTel sought injunctive relief and filed its own lawsuit against Verizon claiming (among other things) that the ILEC intentionally impaired services to AstroTel subscribers, falsified installation and repair records, and failed to inform AstroTel when customers cancelled service. AstroTel also stated in its lawsuit that it was forced to expend undue resources deciphering Verizon’s inaccurate and falsified bills for many years.

It appears however that the close of the Birch deal will bring some closure to the Verizon/AstroTel legal disputes. According to documents filed will the FCC and the US Bankruptcy Court of Florida, terms of the Birch acquisition dictated that upon the deal’s close, AstroTel was required to pay Verizon $489k of its arbitration award, and drop any of its outstanding claims against the ILEC. 

At a price of just $750,000, Birch paid below 1x revenues for the Florida CLEC.  AstroTel stated in its bankruptcy filings that it generated around $1m in revenues in 2010, indicating a deal multiple of approximately 0.75x revenue.  This discounted deal continues a recent bargain hunting trend for Birch. In October 2011, Birch closed on a deal to acquire the assets of Orlando-based Cordia Communications for $8m, paying just 0.1x revenue for the bankrupt CLEC.

Since its inception in 1997, Birch has used M&A to grow its client base from 100 customers to over 100k customers in over 38 states.  Recently however, the company’s growth efforts have been targeted to the Southern US.  In addition to its two Florida based acquisitions (Cordia and AstroTel), Birch has spent $50m developing its own IP network, located primarily in the Southeast and Southwest as it looks to expand its services to include a wholesale offering in the regions.