Service provider Netifice to acquire MegaPath

Netifice and MegaPath, two companies that offer secure broadband services to corporations with thousands of sites, are joining forces.

Netifice is acquiring MegaPath for stock and cash. Financial details were not disclosed.

"Both of our companies, management and investors, have been looking for ways to scale the business and establish more reach in the market," says Craig Young, CEO at Netifice. He says Netifice began its search for a partner about five months ago and that talks began heating up with MegaPath about one month ago.

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Netifice and MegaPath, two companies that offer secure broadband services to corporations with thousands of sites, are joining forces.

Netifice is acquiring MegaPath for stock and cash. Financial details were not disclosed.

"Both of our companies, management and investors, have been looking for ways to scale the business and establish more reach in the market," says Craig Young, CEO at Netifice. He says Netifice began its search for a partner about five months ago and that talks began heating up with MegaPath about one month ago.

"We had absolute agreement between our investors and management that putting these two companies together would create a powerhouse in the industry of managed IP services," Young says.

The joined companies are expected to bring in about $125 million annually.

MegaPath has far more customers, with 14,000 under its belt, but only about half of those are large enterprises. Netifice has 2,000 customers, which the company says all are midsize and large businesses.

Both companies offer IP VPN services, but MegaPath only offers managed IP VPN services based on IPSec. Netifice offers MPLS- and SSL-based IP VPN services. Netifice acquired the latter service from Aventail just over a year ago. That deal included Aventail's Managed SSL VPN Services business unit, including 120 customers, 85 employees and network assets.

Young says the companies have little overlap and offer complementary services including MegaPath's managed firewall, anti-spam and anti-virus services and Netifice's planned VoIP service rollout.

Netifice is testing a new VoIP offering with customers including Doctor's Associates, the franchiser of Subway restaurants.

"We are looking at potential VoIP cost savings in our retail environment," says Marina O'Rourke, director of retail technology at the Milford, Conn., sandwich franchiser, which has 25,000 restaurants worldwide.

"Now with the additional resources and capital MegaPath brings, Netifice will be in a better position to deploy and support large-scale networks," she says.

O'Rourke says Subway has been using Netifice services to support its Subway Retail Network since 2004. "The acquisition makes me feel like we made the right choice when we selected Netifice," she says. About 1,000 franchisees are using the service today, and another 1,000 are slated to come on line this year.

Netifice touts other customers such as The Leather Factory, MortgageIT and Thomson Prometric. MegaPath's customer list includes Jenny Craig, Radio Shack and insurance company UnumProvident.

The combined companies will have about 400 employees, Young says. He will stay on as CEO. Brian Service, CEO at MegaPath says he will be leaving after the deal closes.

The merger is expected to close in April, pending California state and shareholder approval. Young says he expects a positive cash flow by 2007.

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