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George Cope, BCE president announces is seen in this March 16, 2012 file photo. (Paul Chiasson/THE CANADIAN PRESS)
George Cope, BCE president announces is seen in this March 16, 2012 file photo. (Paul Chiasson/THE CANADIAN PRESS)

BCE group buys Q9 Networks Add to ...

A consortium of buyers led by telecom giant BCE Inc. has struck a deal to buy Internet company Q9 Networks Inc. for $1.1-billion following a marathon session of late-night talks.

The agreement, announced well after midnight Eastern Time on Saturday, will see BCE partner with the Ontario Teachers’ Pension Plan and two U.S. private equity firms, Madison Dearborn Partners LLC and Providence Equity Partners LLC, on the purchase.

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Together Teachers, Providence and Madison Dearborn will provide $420-million of the equity funding for the deal, while BCE contributes $180-million. The acquisition, which is expected to close later this year, will also be funded by new debt financing already arranged by Q9.

As first reported in The Globe and Mail on Friday, the move to buy Toronto-based Q9 represents a reunion of sorts for the firms. Teachers teamed with Madison, Providence and Merrill Lynch Global Private Equity to launch a blockbuster $35-billion privatization bid for BCE in June, 2007.

That leveraged buyout, the biggest in Canadian history, failed after the partners walked away in 2008, in the wake of a contentious decision over accounting. BCE had sued Teachers and its partners, except for Merrill Lynch, for a mammoth $1.2-billion break-up fee. (Merrill Lynch was not named in that lawsuit because it was not a guarantor of the break penalty.) As part of the Q9 deal, the parties have patched over their rift about the break-up fee.

Q9, one of Canada’s largest providers of outsourced data centre services, is attractive to BCE because it is moving more aggressively into cloud-computing services – a fast-growing and highly competitive area of business information technology. Tom Little, president of Bell Business Markets, noted the acquisition would also help leverage BCE’s broadband network infrastructure.

BCE already operates six data centres: two in Quebec, two in Ontario, and one each in Alberta and British Columbia. It plans to open a seventh in Gatineau, Que., later this year. In addition to data centres, BCE is focusing on providing data hosting services to business clients.

Q9 has 11 data centres, many located in Western Canada, which would allow BCE to sharpen its competitive edge against Vancouver-based Telus Corp. in its home market.

BCE’s chief executive officer George Cope has said that data centres – along with the roll-out of Bell’s fourth-generation, long-term evolution wireless network; its new Internet protocol TV and Internet product called Fibe; and the launch of a new satellite for its legacy TV business – are a key focus for its $3-billion capital investment in 2012.

“We’re making a significant investment in an area called cloud services, which really talks about investments that companies are making in trying to manage their data,” Mr. Cope told shareholders at the company’s annual meeting.

“We acquired the largest business of that kind in the Province of Quebec last year … and we plan to be a leader in this space and we think this is a very important growth area for us going forward.”

BCE’s Q9 deal would build on its 2010 acquisition of Hypertec Availability Services’ hosting division, a major data hosting provider in Quebec.

Q9 also offers other services including dedicated servers and virtual private networking. Bidding on the company closed last week.

Rivals such as Rogers Communications Inc. and Telus were also considered potential buyers for Q9. One source said Rogers looked seriously at the assets earlier this year when the process was in its early stages. Other pension funds also took a look.

Q9, at one time a publicly traded company, is owned by Abry Partners LLC, a private equity firm that focuses on media, communications and information services companies.

Boston-based Abry announced a deal to buy Q9 for $361-million in August, 2008. Q9’s chief executive officer, Osama Arafat, founded the company in 2000 along with partner Paul Sharpe, who is the company’s president and chief operating officer.

Following the close of the acquisition, Mr. Arafat and Mr. Sharpe will remain in their current roles as Q9 operates as a stand-alone entity. “They recognize the value of Q9 and its team,” Mr. Arafat said in a statement.

 
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