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Azure, Bridgescale team on telecom deal

The San Francisco venture firms have invested more than $11 million in rural internet service provider NeoNova Network Services, highlighting a growing private equity acquisition trend.

Azure Capital Partners and Bridgescale Partners have purchased from public telecom company Digetel its NeoNova Network Services division, a mid-market internet provider for rural US telephone and cable services.

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The sale involved more than $11 million (€7.07m) in equity in addition to debt financing of an undisclosed amount from Hercules Technology Growth Capital, according to Azure general partner Paul Weinstein.

Private equity firms have become more and more attracted to rural telecom markets such as those serviced by NeoNova, as they are often immune from the vicious competition found in urban markets. Many telecom experts cite the expansion of internet services into traditionally underserved areas as a hidden benefit of private equity’s recent expansion into the industry.

We've found that companies that are building a platform to deliver networking and telephony…will be successful.

Paul Weinstein

“From our internal research, we’ve found that companies that are building a platform to deliver networking and telephony as a service will be successful,” Weinstein said, citing NeoNova’s compound growth rate of 30 percent or better over the last five years.

NeoNova provides a plethora of services to more than 60 telephone and cable companies throughout the US, with the majority of its clientele in the southeast. The North Carolina-based company specialises in providing internet services such as data hosting, virus filtering, and voice over IP’s to rural telecom companies who often outsource their online business.

“The [rural] market itself is underpenetrated but highly fragmented,” said Weinstein.

NeoNova represents the first joint investment between Azure and Bridgescale, which specialises in scalable technology companies. Azure’s portion of the investment comes from Azure Capital Partners II, a $127 million fund managing five other communications portfolio companies.