MegaPath Sells Wholesale Business, Plans To Pump More Resources Into Cloud, Managed Services

MegaPath revealed plans this week to sell its wholesale business and national colocation aggregation network to private equity firm Pivotal Group, in a move the company said will allow it to double down on other, "high growth" parts of its business, such as cloud and managed services.

Financial terms of the deal, which is expected to close by the end of the year, were not disclosed.

Craig Young, CEO of Pleasanton, Calif.-based MegaPath, said divesting its wholesale business to Pivotal Group will free up resources and dollars that can now be pumped into MegaPath's fast-growing cloud and managed services businesses.

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"We are basically just trying to focus our efforts and, in terms of dollars, channel them into the higher growth businesses," Young told CRN.

After the deal, Pivotal Group plans on merging its new MegaPath assets with its wholly-owned portfolio company and connectivity service provider Global Capacity. As a result, Global Capacity will gain more than 400 new wholesale customers from MegaPath, along with roughly 300 MegaPath employees.

The deal also gives Global Capacity access to MegaPath's aggregated, central office-based network, which serves 50 markets and reaches over 14 million businesses, Pivotal Group said in a statement.

MegaPath will maintain its voice networks, MPLS networks and security products.

Dan Foster, president of business markets at MegaPath, said the deal with Pivotal Group has been well received so far by MegaPath partners, who welcome the company's sharpened focus on cloud and managed services.

"What I'm hearing is that they believe in the strategy we've articulated, which is to put more investments into these high-growth spaces," Foster said.

Vince Bradley, CEO of WTG, a Malibu, Calif.-based connectivity services distributor and MegaPath partner, applauded MegaPath's move this week, agreeing that it will allow the company to better capitalize on the market's shift to cloud and a services-based IT model.

"It will help things, as it will allow them to focus more on their commercial business," Bradley told CRN in an email.

Bradley added that WTG's MegaPath business is doing "excellent" at the moment. "We are continually driving more and more [business] to them due to the diversity of their product set," he said.

Foster said some of MegaPath's fastest-growing cloud services are hosted unified communications (UC) and collaboration, managed WiFi and hosted voice. The company also offers hosted Microsoft Exchange and data backup services.

Young said MegaPath's hosted voice and UC services have been experiencing "low two-digit" growth rates, and that the goal is to use the capital gained through the sale of its wholesale business to catalyze that growth through additional marketing and advertising efforts.

"Our plan this year, and partly what we are going to use some of this money for, is to up our spend on the … advertisement and promotion side," Young said.

MegaPath today has roughly 4,000 channel partners -- including both telecom agents and IT solution providers -- and does about 30 percent of its business through the channel.