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PacketExchange acquires XchangePoint; raises $2M second round | January 2005


London – PacketExchange, an international Internet connectivity and data communications company, said it acquired XchangePoint Europe, a metro-area interconnectivity company, in an all-stock deal. In connection with the acquisition, PacketExchange also closed a Series B round of $2 million.


The new round was funded by XchangePoint's major investors, GMT Communications Partners and PolyTechnos Venture-Partners. It wasn't immediately clear which firm led the round. Representatives from neither firm were immediately available for comment.


Both the acquisition and the venture capital round closed earlier this week.


The new money increases PacketExchange's valuation by 30%, said Kieron O'Brien, chief executive of PacketExchange. That valuation remains undisclosed.


In November 2004, PacketExchange's first institutional round yielded $3 million, provided solely by Bank of Scotland Equity. PacketExchange had taken an undisclosed amount of seed funding in August 2001.


XchangePoint, which raised about GBP11.6 million primarily from GMT and Polytechnos since foundation in April 2001, is not profitable.


PacketExchange has 35 employees and took six from XchangePoint's staff of 25. "There was close synergy between the companies, the same technical knowledge," said O'Brien about why PacketExchange only took six of XchangePoint's employees. PacketExchange will keep XchangePoint's network. Its brand will survive through 2005.


PacketExchange's revenue for 2004 will be more than $10 million and is expected to more than double again in the coming year. Its 400 clients include Microsoft Corp., Telewest Communications PLC and Yahoo Inc.


PacketExchange, which became profitable 22 months after it launched in 2001, will use the acquisition to accelerate its growth into continental Europe. "It's a revenue–based acquisition," said O'Brien, who added that he is primarily interested in XchangePoint's customer base. "They do a similar thing but on a different scale."


PacketExchange provides Internet connectivity and data communications to service providers and corporate users. The company's services are designed to minimize the inefficiencies of the public Internet, by enabling customers to create direct Internet connections with one another, thus increasing the speed of communication.


XchangePoint offers its customers Ethernet interconnectivity in metropolitan areas, connecting the neutral co-location facilities within European cities. The company offers services in London, Hamburg, Frankfurt and Amsterdam.


"By combining the XchangePoint and PacketExchange product ranges, adding their metropolitan area connectivity services to our wide area portfolio," said O'Brien, "we can deliver greater depth in terms of both service and geography to customers' peering needs. In addition, it expands our presence into new European cities."


O'Brien said the companies have a less-than 10% customer overlap. PacketExchange will acquire Xchangepoint's 170 customers, which are predominantly internet and telephone service providers.


The company will seek more acquisitions. "We are looking for revenue acceleration. We won't buy a boat anchor along with that," said O'Brien, referring to companies with losses or lots of staff.


A representative from Bank of Scotland Equity was not immediately available to comment on the acquisition.


http://www.packetexchange.net

http://www.xchangepoint.net