Verio adds cash to buy ISPs

Verio, which is buying ISPs to build a national network, adds $20 million to its war chest.

2 min read
Verio, which is buying ISPs to build a national network of business-oriented Internet service providers, has added $20 million to its acquisition war chest, bringing the total raised to $100 million.

So far, Verio has invested or acquired 19 regional ISPs, committing about half its capital. It expects to continue adding affiliates to its network in major markets across the country.

Norwest Venture Capital, which drafted Verio's initial business plan, was an initial investor along with Centennial Funds, Bessemer Venture Partner, Boston Capital Ventures, Telecom Partners, Providence Equity Partners, and Fleet Equity Partners. Brooks Fiber Properties, which offers phone service in mid-sized U.S. cities, also owns a significant stake.

Last week, Verio announced that it has acquired a majority interest in Aimnet, a business-oriented ISP in Santa Clara, California, and the third Verio affiliate in the San Francisco Bay Area.

Verio's strategy is to buy at least 20 percent of regional ISPs that meet its investment criteria; it owns at least five of its current 19 affiliates outright. Many of its 19 affiliates have revenues of $5 million to $7 million, but the company will look at ISPs with as little as $500,000 in annual sales, spokesman Steven Silvers said.

Verio also is talking to ISPs with revenues around $10 million, although it hasn't acquired any in that range, he said. Verio expects to take stakes in 30-50 ISPs altogether, then eventually merge them into one national service under the Verio brand.

"We have no shortage of candidates," Silvers added. "As many ISPs call Verio as Verio calls ISPs."

Verio's criteria include a focus on small to midsized businesses, growing revenues (preferably profits), and strong management and technical teams. Affiliates continue to be managed locally but gain the resources of a larger company.

Verio affiliates benefit from having direct access to Verio's high-capacity national backbone, leased from Sprint. They also gain greater financial resources, peering relationships, engineering support, marketing programs, and 24-hour customer service.

In its deals with regional ISPs, Verio has options to either buy full ownership or at least a majority interest when Verio either goes public through an initial public offering (IPO) or raises sufficient cash through a bond offering in 12-24 months.

"We will complete acquisitions or investments to create a physical investment in every [major]market in the country. Then there will be an incremental 'roll-up' process," Silvers said. He said the new capital, raised at a better valuation for the company than the first round, came because investors wanted to up their stakes and to give the company financial flexibility, particularly in its capacity to borrow funds in the future. Verio currently has no debt.