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Pipex acquires Freedom2Surf
Tuesday 18 October 2005 11:11:00 by Andrew Ferguson

It seems there is plenty of cash around in the broadband sector with some companies using it to acquire other providers, or buy into the sector to avoid being left behind. Today sees the news that Pipex have acquired Freedom2Surf for a cash consideration £10 million - full details shown below:

PIPEX Communications plc ("PIPEX" or the "Company") is pleased to announce the acquisition of Freedom to Surf plc, the internet service provider, and Freedom to Surf Consumer Services Ltd (collectively "F2S") for a cash consideration of £10 million. The consideration will be met from £2 million of PIPEX's existing funds and additional facilities of £8 million from the Bank of Scotland and Lloyds TSB.

F2S is a significant UK ADSL provider, with over 40,000 broadband customers at the end of September 2005, which, together with PIPEX's existing customer base, consolidates the Company's position as the 5th largest broadband DSL provider in the UK. F2S is profitable and cash generative, achieving unaudited turnover of £7.2 million for the year ended December 2004 and unaudited pre-exceptional EBITDA of £414,000. F2S generated £466,000 in cash in 2004, and has cash balances of just over £1.2 million.

As previously announced, PIPEX is currently unbundling 60 exchanges. The acquisition of F2S increases customer density around exchanges already allocated for unbundling, improving return on capital. It also provides the opportunity to unbundle a further 40 exchanges that meet PIPEX's 2 year payback criterion and will allow PIPEX to offer higher speeds to a greater number of its customers.

Peter Dubens, Chairman of PIPEX, said:

"In the light of our recent decision to unbundle an initial 60 exchanges, we are very pleased to add F2S to the PIPEX group, which will further increase the density of customers around each exchange, thus improving the return on capital and enabling us to offer higher speeds to a greater number of our customers. F2S's customers will be able to benefit from our extensive network and the broad range of services we provide."

Pipex acquires Freedom2Surf

It seems one reason for the purchase was to ensure plenty of demand for the Pipex LLU service once it is rolled out at 60 exchanges. It seems the extra 40,000 customers around the UK will also make it feasible numbers wise for Pipex to look at unbundling a further 40 exchanges. What will happen to Freedom2Surf customers already using LLU via the EasyNet LLUStream range is unclear - will they remain where they are, or be ported onto a Pipex LLU product? As is often the case on the day of acquisition announcements, the effect on products and existing customers will be unclear, but we assume business as normal for the time being.

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