LEC Clearinghouse Merger Springboard for Full-Service BillingOutsourcer

By Khali Henderson

Four months after the industry’s top two LEC clearinghouses were combined under the Billing Services Group LLC banner, the company’s Chairman and CEO Patrick J. Haynes III says the combination of Billing Concepts Inc. and ACI Billing Services Inc. “is going to be our platform and our engine to proceed in making this a full-service firm.”

The transaction, which was announced in mid-December 2003, involves the acquisition of both Billing Concepts and ACI by ABRY Partners LLC, a Boston-based venture capital fund specializing in consolidations. Billing Concepts, which included the USBI, ESBI and ZPDI operating units, was purchased from Platinum Equity LLC, which had owned the company since late 2000. ACI, which represented the assets of clearinghouses HBS and OAN, was bought from Avery Communications Inc. Avery’s owner, merchant bank Thurston Group Inc., as well as Thurston Group principal Haynes, former Chairman and CEO of Avery, maintain shares in the new company. Additional stock will be made available to officers and other staff, says Haynes, who might be best known in the telecom industry for founding CLEC American Communications Services Inc., which later became e.spire.

Billing Concepts will be the surviving operating company under the newly formed holding company, Billing Services Group. Operations are being consolidated at Billing Concepts’ San Antonio facilities, and ACI’s facilities in Northridge, Calif., will be closed. The integration is expected to be completed by fourth quarter. Billing Concepts’ President Joe Webb and COO Don Philbin will retain their posts with the new company. ACI President Mike Labedz has been tapped to serve as senior vice president of Billing Services Group.

A handful of ACI staff, including a few in the IT group and a few in sales, will join the San Antonio crew.

Haynes says the new owners told Billing Concepts that nothing would change except the philosophy of the holding company. Rather than extract cash for other ventures, the holding company will invest in growing the business, he says.

“We are optimistic about the future as we see more outsourcing opportunities arise,” Haynes says. “We think we have a platform here that in our three- to five-year horizon will be a significant company and one that will be in a number of different industries.”

Billing Concepts is finalizing a rewrite of its software - the basis of the platform - by the end of April. The software has been in production mode and is just being tweaked, Haynes says. “We are optimistic about our future and that we can use this engine and bolt other things on it,” he says. “It also was designed for that, not just as a LEC billing platform; it was designed to be multidimensional.”

Haynes says ACI was about a third the size of Billing Concepts, so it will be a significant addition to the joint venture. The combined entity expects to process more than $1 billion in transactions in 2004. “What we have is a significant engine there that has the ability to process millions of transactions daily, accurately and efficiently,” says Haynes. “That’s the reason we bought the company - to give us a platform to start hanging other branches on.”

One of these other branches, logically, is direct billing. “We already are in the direct billing business now to a small degree [through Billing Concepts’ existing platform],” says Haynes. “I really don’t want to hype this now, but I will say that we are going to be in that business in a significant way, and it’s going to be a bigger and bigger part of our solution package.”

Another line of business could be credit card clearing, he says. At the same time, the company is working to grow its LEC billing services by billing for 900-number services, such as help desk or account information, offered from business to business. Haynes says that opportunity, seized by ACI little more than a year ago following AT&T Corp.’s exit, has resulted in winning key accounts like Hewlett Packard and Bank of America. Haynes says the clearinghouse also is partnering with its telco customers like Sprint Corp. to sell the billing service to enterprise customers.

Haynes says the company’s investor ABRY Partners also brings a plethora of contacts to the table in the form of companies - cable TV, telco, alarm companies to name a few - that are potential customers for billing services offered under Billing Services Group.

“Between the integration of our companies and these other business opportunities from our big brother, we are pretty excited about the ’04 forecast,” Haynes says.