Paetec CEO: Xeta Buy Offers Big Channel Opportunity

Paetec earlier Wednesday announced it would acquire Xeta in a cash deal valued at about $61 million. It's the second major acquisition by Paetec of a major reseller in the past seven months, following its June 2010 acquisition of West Coast Avaya power Quagga.

"We're accelerating the program we began with Quagga, instead of growing it organically over the next four to five years," said Arunas Chesonis, Paetec's chairman and CEO, in an interview with CRN.

Broken Arrow, Calif.-based Xeta, like Quagga, is a Platinum Avaya partner with significant national reach. Xeta itself has acquired several smaller Avaya and Nortel partners in the past year and a half.

Paetec has continued to acquire VARs over the past decade as it looks to supplement its telecom service provider businesses with more traditional IT reseller, integration and managed services capabilities.

Chesonis acknowledged that the Xeta acquisition might ruffle the feathers of other Avaya and Nortel VARs with whom Paetec partners, but that Paetec also needed to guard against solution providers partnering with Paetec's competitors, too.

"We just wanted to be sure that we're able to service customers 100 percent ourselves if we need to," he said. "I mean, look, if you're giving your business to XO and Level 3 and not being a real partner with us, all bets are off. But if you're engaging us and we're working together on a bundled solution with a client and we're doing the network, and it's that kind of business, that's what we're here for."

Look for Paetec to maintain its VAR partnerships but also drive Paetec deals, with VAR partners and without, more aggressively.

"It's a really common sense business message to the partners," Chesonis said. "We've doubled our managed services revenue in the company, and we still want to partner. It's pretty basic. If you won't engage us on the network side, we'll chase something else. There's a lot of business there to be had."

Paetec and Xeta expect the acquisition to close within the next three months. During those months, Chesonis said, he and his team will be getting to know Xeta President and CEO Greg Forrest and his team.

Chesonis didn't say what Forrest's role with Paetec would be going forward, but said that he expects to preserve Xeta's management team. Xeta, under the terms of the acquisition, will become an indirect, wholly owned subsidiary of Paetec.

"Greg has put together a nice team, and we'd like to build on top of that. My expectation is that Greg would be staying," Chesonis said. "Sometimes you get marriages that happen quickly, and they're arranged, so you get to know each other after the fact. That's what's happening now. They're [Xeta] growing, and our Quagga business is growing, so the opportunity is huge."