Telco Consortium Buys Cloud Provider Codero

A consortium of 32 regional telecom and broadband providers called BLM Acquisition Corp. has acquired cloud service provider Codero.

Financial terms of the deal have not been disclosed, but Codero CEO Emil Sayegh said it was at an above-average multiple. However, this latest cloud acquisition isn’t about just equity.

“These entities in their own right are technology companies with presence across the United States,” said Sayegh. They will be a channel partner, putting Codero services closer in terms of transit, and in terms of data center footprint.”

Codero not only gains the equity needed to expand, it gains several avenues of established customer pools in underserved markets in which to expand. A network of strategic investors with “boots-on-the ground” knowledge of communications and technology needs will help guide the company going forward.

Codero customers will have enhanced connectivity options, and Codero will gain access to one of the largest combined fiber networks in the U.S., all facilitating the delivery of latency-sensitive applications.

Long-Time Investor Catalyst Investors Exits

Catalyst Investors has been the company’s backer for 9 years – a very long time considering most private equity firms look for an exit and profit in five years.

“They’ve been an excellent partner, but it came to a point where the investment has been one of their oldest funds, and it needed to be closed," Sayegh said. "We were looking for another investment partner, not necessarily to get acquired. We were looking to take some of Catalysts’ equity out. PE funds are limited and regulated to fund a current investment from another fund. As we wanted to expand to Europe, we needed another source of capital.”

Cloud Transforming Hosting Industry

Codero's roots are as a dedicated and managed hosting company. Sayegh took the helm in 2012 and helped it transform and turn around, as the dedicated-hosting industry was slowing. Automation transformed what used to be a timely rack-and-stack physical server provisioning process into cloud. Dedicated hosting is bare metal cloud's father.

Amidst a sea change in the hosting industry, as it evolves toward cloud, there has been a lot of "rollup" and consolidation. Telecoms and cable companies have made big cloud acquisitions, such as Peer 1's acquisition by Cogeco, to form the basis for a cloud play. There have also been several consolidation deals where two companies joined forces, such as Datapipe’s acquisition of GoGrid.

The Codero deal is unique in that many of the stakeholders have services businesses themselves, and will essentially “franchise” Codero services in their data centers.

The consortium consists of regional telecoms serving various audiences across the country that are often overlooked by large service providers. Individually, these are small regional plays, but Codero is a unifying front. Combined, the consortium's subscriber numbers are immense. One consortium member is itself a consortium of eight or so telecoms.

The acquisition makes Codero a major cloud play in the cities that aren’t core markets and in smaller and rural towns. It also positions the company to provide edge cloud services to local businesses in towns and regions you wouldn’t necessarily consider.

Codero will be putting hardware in its facilities. The company can expand in a variety of different ways, from having a relay at a local central office or putting a large footprint at a customer location. Some may choose to offer certain Codero services at a given location, and some will house mini Codero data centers inside of their own. Sayegh said the company has designed a very repeatable footprint.

Sayegh will be chairman of the board and retain his position as CEO and president of Codero.