Lightyear Wireless – MLM In Liquidation?

Eric Bechtold


Lightyear Network Solutions (USA) – home of top earners Eric Bechthold and Ben Sturtevant  – soon will be a name relegated to the competitive telecom history books. According to a May 14 SEC filing, Lightyear, the Kentucky-based telecom reseller founded in 1993 as UniDial by Sherman J. Henderson III, is being dissolved and liquidated as the result of a $22 million acquisition by Birch Communications Inc.

Lightyear has seen its end coming. The company noted in its 2012 annual report, filed on April 1, that it has incurred significant losses since inception. … Unless Lightyear can execute a business combination or become profitable, Lightyear may be forced to cease operations or to seek insolvency protection. To that point, Lightyear showed a net loss of $2.3 million for 2012 and said on April 1 it would start looking for a buyer. The company said it could not stave off continued market pressures, including heightened competition and customers' shift toward lower-revenue technologies such as VoIP and wireless.

Over the past couple of weeks, Lightyear found its exit strategy – a buyer in Birch Communications. Birch, which has a rocky history of its own, has worked to breathe new life into its business model by becoming an IP and telecom managed services provider to SMBs. To do that, the original Birch in 2006, after surviving two of its own bankruptcies, started snapping up competitors' assets – often those of insolvent or weakened companies such as Covista and Cordia. In 2007, it merged with another traditional CLEC, Access Integrated Networks, before rebranding the overall company as Birch. Since then, it steadily has gobbled smaller providers, attracting investor interest along the way and landing continued funding for M&A.

Now, Birch is taking on its 18th and arguably largest acquisition in Lightyear. On May 15, Birch said it will buy Lightyear's assets and some customers for $22 million. Lightyear's revenue in 2012 totaled $66.4 million. It served 65,000 customer locations by year's end, according to the April 1 SEC filing, and worked with 150 agents, who accounted for approximately 85 percent of Lightyear's 2012 revenue. Birch did not go into detail about how it plans to treat Lightyear's agent agreements. Brad Smith, Birch's channel chief, did tell Channel Partners Birch is looking forward to working with current Lightyear dealers, and their customers, to expand what they are currently able to offer, and give them an opportunity to grow their businesses even further.

Birch echoed that sentiment in a press release and said it also welcomes Lightyear's employees, who numbered 140 at the end of 2012, to its fold.

Meantime, Lightyear plans to use net proceeds from the deal to repay its outstanding debt, which includes a $6.25 million promissory note to an unnamed company director. Another $2.2 million will be set aside for any post-closing adjustments or other obligations from the purchase agreement. If there is any money left over after severance and other expenses, Lightyear will distribute the remainder to shareholders.

Finally, the $22 million purchase price could go down if Lightyear meets certain pre-closing financial targets, it stated in the April 1 filing, or if specific working capital adjustments must be made.



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