January 22, 2011

Pivotal acquires telecom business

Phoenix-based Pivotal Group said Wednesday that it acquired a bankrupt Chicago-based telecommunications company by paying $65 million of its debt.

The acquisition of Global Capacity will allow Pivotal to benefit from an explosion in demand for global optical fiber to distribute computer and smartphone content, said CEO Francis Najafi.

Pivotal, a private-equity and real-estate company, said it was working with Global Capacity to finalize a plan to emerge from Chapter 11 bankruptcy. A hearing is set for Wednesday.

Given that his company controls 100 percent of Global Capacity's debt, Najafi said he did not expect problems in getting a judge to approve the deal.

Global Capacity, which filed for bankruptcy in July, has a proprietary platform that shows the world's fiber lines and the fees associated with using them, Najafi said. Using that information, clients can calculate the most efficient route to send information globally across the network.

"Nobody owns 100 percent of the connectivity on fiber," Najafi said. "Everybody at some point has to go on somebody else's network."

The company can tell its customers where the most underused, best-priced fiber is in the market, he said.

Melker Sandberg, a managing director at FTI Consulting, which provided market intelligence to Pivotal as part of the transaction, said the global telecommunications market remains highly inefficient and costly for companies to manage themselves.

He said Global Capacity's design, pricing and managing of fiber-extension services were unique in the market.

Najafi said fiber was critical because the wireless spectrum needed for delivery of voice, data and video was expensive and difficult to acquire.

"All the telecoms are attempting to push down as much wireless . . . as they can . . . into the fiber because it's more reliable and it's cheaper and because spectrum has so limited bandwidth," he said. "Interestingly, wireless has increased the demand for fiber."

Najafi said Pivotal began talks with Global Capacity nine months ago. The company acquired its senior debt about six months ago, but Global Capacity paid it off after filing Chapter 11.

"At that juncture, we were out, but we continued discussions with the management and ultimately ended up negotiating to buy the convertible positions and replace their debt with our debt," Najafi said.

Pivotal started a private-equity division in 2002, and its first deal was for domain-name registrar Network Solutions. It sold the company in 2007, and decided to wait out the financial meltdown.

"After the market downturn, we've decided to go back and start looking at deals both across the private-equity space as well as real estate," Najafi said. "Among all the deals we looked at, this is the one we really liked the best."

by John Yantis The Arizona Republic Jan. 20, 2011 12:00 AM




Pivotal acquires telecom business

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