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NewSouth Scores $62.5M

Imagine this: In the heart of telecom winter, a small service provider in South Carolina named NewSouth Communications announced yesterday that it has received $62.5 million in private funding (see NewSouth Comms Gets $62.5M).

“We’re feeling pretty good about ourselves right now,” says NewSouth president and CEO Jim Akershielm.

Participating in the funding round, which is NewSouth’s fifth, were existing investors Kohlberg Kravis Roberts & Company (KKR), Wachovia Capital Partners and Vaxa Capital Partners, LP; plus two new investors, long-time CLEC investor M/C Venture Partners and first-time CLEC investor Quadrangle Group LLC. .

“NewSouth has all the characteristics of success,” says Joshua Steiner, the managing principle of Quadrangle. “In a difficult and complex telecom environment, NewSouth is clearly a survivor.”

“They have a good market, good customers, and good management,” agrees Jim Wade, managing partner at M/C.

Carousel Capital Partners, First Union Capital Partners, and J.P. Morgan Chase Bank & Co., which were investors in prior rounds, did not participate in the latest. The branches of the two latter companies that initially invested in NewSouth are going out of business, Akershielm explains, and Carousel’s original committed investment blocked mingling funds.

The privately-held Greenville-based company has raised more than $387 million since it launched its business in 1998 to compete with former regional monopoly BellSouth Corp. (NYSE: BLS). NewSouth, which currently has about 750 employees, provides voice, data, Internet, and other telecommunications services to more than 20,000 business customers throughout the Southeast.

"These types of CLECs are a little more stable because they went after more of a cash-cow business [in] voice," says Infonetics Research Inc. analyst Kevin Mitchell, comparing NewSouth to CLECs that put all their resources into new cutting-edge technology during the boom, and that have since, for the most part, gone out of business. "When the market does turn around, I'm sure they'll be poised to go public and raise even more money."

The latest influx of cash is all the carrier needs, it claims, to reach profitability. “This money is earmarked for funding our growth in existing markets,” Akershielm says.

Last month, NewSouth announced that it had exceeded its earnings expectations in a number of areas in 2002. Among other things, the carrier reported a 25 percent increase in revenues for the year to $156 million, and a 31 percent jump in the number of lines installed to more than 210,000. The company also started generating positive operating cash flow in 2002.

Following the new investment, NewSouth’s board of directors will expand to a 12-member body, according to the company. Akershielm will have one seat; KKR, Wachovia Capital Partners, M/C Venture Partners, and Quadrangle Group will each get two. The remaining three seats will go to independent directors R. Clint Johnstone, who will continue to serve as chairman of the board, Leighton Cubbage, and John Fujii.

— Eugénie Larson, Reporter, Light Reading

grapsfan 12/5/2012 | 12:30:09 AM
re: NewSouth Scores $62.5M I don't know any of their financial details (and nobody else might either), but....

If they've had a 25% increase in revenue, and 31% increase in the # of lines, and declared positive cash flow for the first time, then why are they putting themselves $62.5M more in VC debt? Why split up the pie even further by adding three more board seats?
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