March 11, 2003 -- For MeridianTelesis president David Taffet, 2002 was a rollercoaster year. The Philly-based colocation provider launched an ambitious expansion in the spring, which was discontinued as the year drew to a close.
Despite that disappointment, Taffet remains enthusiastic about the colocation business and open to making future acquisitions.
"The year was definitely tumultuous," said Taffet. "MeridianTelesis ended 2002 the same way it started out, with a profitable data center in Philadelphia."
In May, MeridianTelesis took over three Broadwing data centers in New York, Dallas and Santa Clara, Calif. The arrangement allowed Broadwing to maintain its network equipment at the facilities, while MeridianTelesis managed the colo operation.
But with the economy slowing, MeridianTelesis was unable to build sales momentum at the new sites. The departure of one substantial customer and financial problems for several others compounded matters.
"That type of downturn in revenue couldn't be overcome in an environment where sales were sluggish," said Taffet. "As a result, we turned the facilities back to Broadwing, and they accepted them. Broadwing was a great partner, and worked with us. We're fortunate that they're the ones we did this with."
MeridianTelesis was founded in 1998 by Taffet, a former lawyer and investment banker. The company focused on the Philadelphia market, opening a 20,500 square foot facility in the Port of Technology Center for Innovation on Market Street.
After four years of focusing on one facility, MeridianTelesis saw an opportunity to expand last year when Broadwing announced that it would consolidate its data center network. The deal was carefully considered, Taffet said.
"Fortunately, we had structured the business where the Broadwing component was entirely distinct, with a separate structure and management team, so that the Philadelphia colocation center was unaffected by the Broadwing operation," said Taffet. "We are operating very strongly (in Philadelphia). Cash flow is positive and we have grown each month."
Despite the setback with the Broadwing centers, MeridianTelesis is still contemplating expansion.
"We are actively pursuing acquisition opportunities," said Taffet, who said the company was close to a deal last fall, having raised more than $100 million to fund the effort.
"What it showed us is that we were able to raise money, and do so quickly," said Taffet. "We have looked at a lot of what's out there, and found it not quite as compelling as the opportunity we saw with Broadwing."
Taffet believes the industry consolidation is about to accelerate.
"I think you're going to see some acquisitions this spring, followed quickly by other acquisitions," he said. "There are a whole crop of bankrupt providers that have viable operations."
As events unfold, Taffet said he could see some scenarios in which MeridianTelesis would be an acquirer, and perhaps even some in which it would be open to being acquired by the right partner.
Finding that right partner is critical, he noted. In the wake of the Broadwing experience, Taffet says he's learned a lesson on that front.
"Never look for the economy to be your partner," he said.