Fusion Connect filed for chapter 11 bankruptcy in June.

Edward Gately, Senior News Editor

September 17, 2019

9 Min Read

Going through chapter 11 bankruptcy is going to harden Fusion Connect and make it an even more dominant player when it emerges later this year.

That’s according to Matthew Rosen, Fusion’s chairman and CEO. Fusion filed chapter 11 after its acquisitions of MegaPath and Birch Communications’ cloud and business-services business failed to meet performance projections.

Fusion entered a restructuring support agreement (RSA) with lenders holding more than two-thirds of the aggregate outstanding principal amount of its first-lien loans.

Fusion borrowed $680 million, including the senior lender loans, to acquire Birch and MegaPath last year.


Fusion Connect’s Matt Rosen

In an interview at last week’s Channel Partners Evolution, Rosen talks about the chapter 11 process and what partners can expect when the company exists bankruptcy.

Channel Partners: What’s the latest in terms of the chapter 11 process? Is the exit still anticipated for this fall?

Matthew Rosen: We filed chapter 11 on June 3 and I think there were a couple of things that were very important that we focused on even prior to filing, which has helped us manage a successful process. The first is an agreement with our lenders, so we entered into chapter 11 with financing and an agreement with our lenders to make sure that the company was in a position to continue operations, which is always very important. The other is to focus on our core three assets … the internal people that we’ve got (our management team); our customers, making sure that the communication is there, making sure that we have no interruption in services; and the channel partners, to make sure everyone’s comfortable, they’re getting paid — it’s business as usual, same team, same people, same products and services. And I think we’ve managed that incredibly well.

We have decided to go with the lenders and so the lenders actually are going to end up owning the business as we emerge from chapter 11, and the timing … now is mostly dependent on regulatory approvals, which we’ve already started the process, and we expect it by November-December assuming no challenges in the regulatory approvals. We should be emerging as a much stronger business, especially financially.

If you take a look at the operating statistics of Fusion while we’ve been in chapter 11, [they] are about as good as they’ve ever been. So we’ve actually not stumbled at all. I think we’ve managed the process and used a very, very communicative approach. We’ve probably overcommunicated to people. If you look back at what we talked about when we first we entered into chapter 11, all of the things we we talked about doing, we’ve done, and especially around the channel.

CP: What sort of feedback have you been receiving from partners about the chapter 11 process?

MR: There was a lot of concern because …

… of some other people who had filed chapter 11 – are we going to get paid, are you changing the comp structure, all of these things that are natural to worry about – and we assured people at the beginning of the process that we’re not going to mess with that and we haven’t messed with it, and we don’t plan to mess with it. I think we’ve just done the right thing and because of that, people have treated us the right way.

The more somebody understands a chapter 11 process, the more comfortable they are, and that was from the very beginning. I had people saying great things for the business because they understood that a chapter 11 filing is simply a restructuring of the financial balance sheet of the company, and nothing to do with the business itself. For those people who equated chapter 11 with we’re going to liquidate or something like that, it took a little bit of time to educate [them] that is not at all what is happening, and I think that folks generally are now comfortable in the position we’re in. We’ve been very open with the fact that we’ve got more than enough capital at this point to run the business.

Sometimes you have people come up and say, “Hey, we’re not really comfortable yet to give you a new large enterprise because the enterprise is concerned,” but on the other hand you have channel partners that are saying. “These guys understand it, its not a problem, our existing enterprise customers are growing with us, we’re bringing on a whole bunch of new customers.” So we really have not seen the typical disruption to a business that you would typically see during a chapter 11 process because of how we’ve handled it.

CP: Has Fusion Connect lost any partners? Any concerns from them about it being more difficult to sell Fusion Connect?

MR: We haven’t lost any partners. I would tell you absolutely the opposite; we have not only not lost any partners, but we probably have more support from the partners than we ever had, because in this business, there are good people and there are people who are challenging, and I think if you were ask around about Fusion, they would identify us as a really good group of people that have beaten all the odds to get to where we are today. Keep in mind back in 2010 we were a $2 million business and we’re now over a half-billion, and there aren’t a lot of companies that can do that while retaining their core way of doing business and their core way of treating people. When you treat somebody the right way, they’re there for you when you need them, and I think that’s where we find ourselves.

CP: Have any changes taken place that have impacted partners? Any changes in channel strategy?

MR: None. We’ve always been dedicated, we continue to be dedicated; if anything, we’re trying to make it clear that we’re even more dedicated than we ever were in beefing up some compensation plans and incentive plans, but we haven’t changed any of the fundamentals of how we do that business at all. Quite frankly, we did it well before and we’re doing it well now, and if anything we’re trying to do more outreach because of the situation than less.

CP: Are the Birch and MegaPath integrations completed? How have all of these partners been consolidated?

MR: It is largely completed. We do have a couple of back-office systems that will be completed in the next few months. I think our team has done a tremendous job of integrating all of the aspects of the business, the culture, most of the systems, the quoting tools, all of the aspects that allow our channel partners to be successful. Our overall mindset is, don’t mess with something that’s not broken, so as you look at integrating different compensation plans that one company may have and another company may have, we were …

… very careful not to disrupt anything. So we’ve adopted all those contracts, we’ve been using all those contracts, and as the channel partners know … we’ve just done the right thing.

CP: Have bringing Birch and MegaPath together with Fusion created new opportunities for partners? Are they able to offer more a consolidated solution?

MR: The answer is yes, but keep in mind that Fusion prior to MegaPath and Birch had probably the most robust portfolio in the entire market, and so when we bought Birch and MegaPath, it really didn’t contribute any new services to Fusion. It really contributed new infrastructure, new customers and new distribution channels. So our channel partners at Fusion didn’t really get anything new. The Birch channel partners and the MegaPath channel partners got a lot new.

CP: What will Fusion Connect look like when it exits chapter 11?

MR: It really doesn’t change from where we are today. The real change is going to be not really seen to anybody externally — and that’s a financial change. So our balance sheet is going to look a lot stronger, and other than that, the operations of the business, the strategy, the products and services are all expected to remain the same, and so we don’t want to abandon the vision that we created that’s been successful for the company, that’s resonated with the channel, that’s resonated with the customers, that excites our own people. There’s no reason to mess with that when you’ve got that kernel of excitement and vision, and forward-thinking behavior that you need to have in our industry.

CP: Any regrets about any decisions made, any acquisitions made that may have led to the chapter 11 process?

MR: I would say it has been a tremendous education for me. I’ve spent a lot of my personal career in challenging businesses that I’ve turned around. This is the first time I’ve been through a chapter 11 process, it has been quite challenging to balance a process with making sure that the operations of the business remain strong and stable, and your constituencies remain loyal. And I will tell you that I am incredibly blessed to have a group of people that have remained very loyal, heads down and doing what it takes to make sure that the business is and has been kept stable and in a position to be even stronger upon emergence. That’s not an easy thing to get in our industry.

I certainly would have preferred not to have to go through this process, but I will also tell you that going through a process like this hardens a business … and so it prepares us to really overcome any challenge that we see when we’re moving forward. And, of course, there are things that in hindsight I would have preferred not have happen and things that were handled one way that in hindsight you can always look back and have things handled differently, and we have those thoughts and beliefs. But having been in this situation and looking to emerge from it, I actually think that this is going to be an incredibly valuable lesson that the organization has learned and it’s going to position us even stronger, and quite frankly be an even more dominant player in the industry than we were before this.

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About the Author(s)

Edward Gately

Senior News Editor, Channel Futures

As news editor, Edward Gately covers cybersecurity, new channel programs and program changes, M&A and other IT channel trends. Prior to Informa, he spent 26 years as a newspaper journalist in Texas, Louisiana and Arizona.

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