Acquisition Shows Regional Telcos In It To Win With Cloud Services

And regional VARs are likewise being courted by the telcos for their wealth of IT knowledge and deep client relationships.

Case in point: Twin Valley, a Kansas-based ILEC, recently acquired 80 percent ownership of IT solutions provider, ISG Tech, also based in Kansas, with eight locations. ISG has been making a push into data center, managed services, and cloud over the past several years, and has seen demand growing out of control, according to ISG co-founder and president, John Gunn.

Together, the two companies will be able to expand their product portfolio, geographic footprint and client base, and plan to offer wholesale and private label reseller programs to other regional carriers and integrators.

“A strong business product portfolio is a key element to a successful growth strategy for both companies,” said Ben Foster, Chairman and CEO of the combined companies in a statement. “Twin Valley has had great success deploying our cloud based voice service through our Hosted IP PBX platform. We had a choice of continuing to drive product innovation and revenue growth organically or by seeking a partner. Having previously worked together, the companies quickly recognized the synergies between our strategies.”

ISG’s Gunn told CRN the merger with Twin Valley will complement ISG’s cloud offerings by giving them better insight into the inner workings of the carrier world.

“We understand the cloud technology and how the pieces fit together, but what we don’t understand as well is the carrier side,” Gunn said.

The deal is also a win for customers, Gunn said, because the partnership allows access to Twin Valley’s regional network of 29 rural ILECs with thousands of miles of fiber, bypassing the charges of the big carriers and offering clients connectivity at lower costs.

The Twin Valley and ISG deal echoes the $17 million acquisition earlier this year of unified communications and cloud provider Alteva by New York area CLEC Warwick Valley Telephone Company. Gunn said that Twin Valley was encouraged by the success of that merger to facilitate its own entry into the cloud marketplace through acquisition.

And as a VAR, Gunn -- who will retain a minority stake in the company -- welcomes the services-based compensation model, because of the predictability it adds to his business.

“We had been talking about getting more services-based income, more recurring revenue,” said Gunn, who hopes recurring revenue will become around 30 percent of business on the ISG side. “It allows us to build long-term relationships...with our customers. With the project-based things that we do, we’d have a great month or year, finish that project, and then have to start all over again. The recurring model adds some stability to the business.”

The two companies will remain headquartered in their current locations, Twin Valley in Miltonvale, Kan., and ISG in Salinas. Ben Foster will serve as chairman and CEO of the combined company, while John Gunn will service as president and COO. Financial details of the merger were not disclosed.