Best Buy to Acquire Speakeasy for $97 Million

In a move that positions the consumer electronics retailer as a one-stop communications shop for small businesses, Best Buy announced Tuesday it is buying broadband services provider Speakeasy Inc. for $97 million.

Speakeasy sells T1, business-class DSL, business VoIP and managed services to verticals such as real estate and doctors offices with 50 or fewer employees.

Following the close of the deal, which is expected by the end of May, Best Buy will be able to provide small businesses with solutions for all of their computer, telephony and data needs and all through a recognized brand, said David Hemler, vice president of Best Buy For Business, the division that will provide the hosted IP services. We can bring that brand-name recognition to the dance, if you will, as well as good national distribution, direct sales and retail sales, which will really help build [the Speakeasy] brand.

Sanford C. Bernstein retail analyst Colin McGranahan, in a research note, said Best Buy has been implying it would do such a deal given evidence that the companys small business customers are devoting an increasing share of their investment dollars to this technology.

The bottom line is were seeing new and different players getting into the telephony business, and certainly not through the traditional channels, said Will Stofega, research manager of VoIP services for IDC. Many companies already team up to offer managed services, he said, but I havent seen someone decide to go whole hog and buy a service provider.

Best Buys model for the Speakeasy acquisition appears similar to what it did with Geek Squad a couple years ago taking a well-respected but relatively unknown outfit and turning it into a nationally-recognized brand.

I think what Best Buy has identified is this gap where everyones competing on price and no ones really offering value and service, said Scott Wharton, vice president of marketing for BroadSoft Inc. Speakeasy uses BroadSofts platform for its VoIP services. This is a huge leap forward for the VoIP space and small business.

Telecom analysts and vendors took the merger as a sign that IP services finally are gaining traction among SMBs, the engines that power the American economy.

It really gives voice over IP the small business stamp of approval, said Lisa Graham, senior vice president of wholesale partner relationships for Covad Communications Group Inc., Speakeasys wholesale broadband supplier. Best Buy is a very well-known brand, and people are obviously going to associate this brand with this technology. Its very validating.

The $97 million price tag Best Buy paid for Speakeasy amounts to 1.2 times the service providers 2006 revenue of $80 million. Following the close of the deal, Speakeasy will operate as a wholly owned subsidiary of Best Buy. It will remain in Seattle and all executives and employees expect to stay with the company.

Industry watchers say the Speakeasy acquisition likely is the first of several for Best Buy as the company competes for SMB marketshare.

BroadSofts Wharton predicts the retailer will move into the WAN and Wi-Fi space as well, again serving sectors typically overlooked by large telecom companies and residential-focused providers such as Vonage. Eventually, consumers might have access to Speakeasys services, but, for now, its a business play.

Best Buy www.bestbuy.com  

Speakeasy Inc. www.speakeasy.net