PAETEC Holding Corp. to Acquire XETA Technologies

  • Xeta Technologies
  • 02.09.11
PAETEC Holding Corp. (NASDAQ GS: PAET) announced that it has signed a definitive agreement to acquire XETA Technologies, Inc. (NASDAQ GM: XETA) for $5.50 per share in cash valued at approximately $61 million.

Founded in 1981, XETA Technologies sells, installs and services advanced communication technologies for enterprise customers. XETA is among the largest full-service, providers of advanced communications solutions with 32 locations and redundant 24/7 customer contact and data network operating centers.  At the time of the Avaya and Nortel merger, XETA was one of the only national providers with the highest accreditations from both companies, and will expand on those relationships with PAETEC’s existing platinum partnership with Avaya.  XETA’s national coverage is ideally suited to serve large, multilocations, organizations such as PAETEC’s enterprise network customer base.

Consistent with PAETEC’s vertical strategy for over a decade, XETA has a strong focus on vertical industries including the hospitality, education, healthcare and government sectors.  As part of that focus, XETA has developed customized products and services including software solutions, proactive monitoring and remediation, guest and back-of-the-house support services for hospitality customers, as well as professional services.

XETA will also become part of PAETEC’s robust managed services portfolio, consisting of products such as hosted services, service lifecycle management software and Allworx IP-PBXs.

“This transaction highlights our strategy to increase our capabilities to service enterprise CIOs beyond traditional telecom products with advanced managed services and cloud computing solutions,” said Arunas A. Chesonis, chairman and CEO of PAETEC.  “PAETEC and XETA have a consistent national footprint and customer base while offering complementary services.  As a result of this transaction and combined portfolios, both companies will have far stronger value propositions for our customers.”

For XETA Technologies’ 2010 fiscal year ended Oct. 31, 2010, the company reported revenue of $85.7 million.   For fiscal year 2011, XETA expects to generate over $100 million in revenue.  After the closing of the transaction, PAETEC plans to have approximately 5,100 employees nationwide.

“After a thorough review of our strategic alternatives, our board of directors has unanimously determined that this transaction provides XETA shareholders a superior and certain value,” said Greg Forrest, CEO and president of XETA Technologies. “We have a 30-year history of delivering best-in-class services to our customers.  With the expanded scale and scope of PAETEC, the value proposition to our customers, vendors and business partners has never been stronger.”

Transaction Terms and Structure
Under the terms of the merger agreement, which was approved by the boards of directors of both companies, XETA Technologies, Inc. will become an indirect wholly owned subsidiary of PAETEC Holding Corp.  Neither the merger agreement nor the merger is subject to the approval of PAETEC’s stockholders.  The merger agreement is subject to the approval of XETA’s shareholders and other customary closing conditions. The companies expect that the transaction will close within three months.

Based on the 10,762,1911 common and restricted shares issued and outstanding and the cashing-out of certain issued stock options and warrants, the aggregate equity value of this transaction is approximately $61 million. Based on net debt as of October 31, 2010 of $1.5 million, the aggregate enterprise value of this transaction is approximately $63 million.

Additional information about the transaction will be contained in public filings of XETA or PAETEC filed with the SEC.

Stephens Inc. is acting as financial advisor to PAETEC and Harter, Secrest & Emery is acting as legal counsel to PAETEC.  Stifel Nicolaus Weisel is acting as financial advisor and Barber & Bartz and Mayer Brown are acting as legal counsel to XETA.

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