Netifice and MegaPath merge

Netifice and MegaPath announced Tuesday that the companies are merging in a stock-and-cash deal.

“Both of our companies, management and investors, have been looking for how to scale the business and establish more reach in the market,” says Netifice CEO Craig Young. He says Netifice began its search for a partner about five months ago, with talks 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. “That’s the role we want to play.”

Because both companies are privately held, neither is disclosing the financial details of the deal. 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 enterprise users. Netifice has 2,000 customers, which the company says are medium and large businesses.

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

Young says the companies have little overlap, and other complementary services include 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 franchisor 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.-based sandwich franchisor with over 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, with another 1,000 slated to come on line this year.

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

Together the combined companies will have about 400 employees, Young says. He will stay on as CEO while MegaPath CEO Brian Service 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 the combined company to be cash-flow-positive by 2007.