Houlihan Lokey’s Media & Telecom Group
October 24, 2009
I was an invited speaker to the recent Houlihan Lokey’s Media & Telecom Group Conference at the Waldorf Astoria in New York City.
For the most part, with the exception of two of my charts, I behaved myself. But, that’s not the real story coming out of this conference.
Houlihan Lokey did something very different from most banking firms that host these events for the financial community. They invited a number of privately-owned Telecom and media companies to present their businesses, strategies and outlook. Similar banking events often only invite publicly traded companies, which basically tell you what you already know by reading their quarterly reports and filings under Sarbanes-Oxley. The “big guys” mentality
exist at those events even though, in the grand scheme of things, some of the “big guys” are still a pimple in comparison to an ILEC .
I think the eye opener at this conference was for the Private Equity firms attending. They were able to receive information on companies that, quite frankly, outperform a number of public companies by significant margins and benchmarks. Albeit smaller companies, but the fact of the matter is, give these same small firms the capital to expand, and they will take many public firms to the cleaners. Most PE firms, however, wrestle with believing, “I can only invest hundreds of millions of dollars.” in my opinion, investments should always made on the management team. It’s like the old saying at the race track – always bet on the jockey. You can always add money, so why let someone get drunk on up-front cash regardless of business model or razzle-dazzle PowerPoint charts and projections?
Too often CEO’s with too much cash go on ego trips with that cash burning a vicious hole in their pocket. Becoming a celebrity CEO and using someone else’s money is disingenuous at a minimum! Our last round of Celebrity CEO’s and
CFO’s using other peoples money resulted in the telecom meltdown circa 2001-2003 … let’s not have short memories. Fund responsible management – not a story of conquering lust!
Many presenters leading the private companies have in fact previously held executive positions at multi-billion dollar firms, I amongst them. One reason I started AFS was the waste of capital and human resources at large companies I often witnessed that could perform much better if utilized appropriately or should have less people as they underutilize their intellectual capabilities either by operating procedure limitations or cultures of control. The human resource maximization mindset was well illustrated by the low churn rates of customers the private firms disclosed. Focus on customers is paramount over focus on each other internally was a key repeating theme.
A lunch time panel of various financial firms indicated that things are changing and they see consolidation relative to metro fiber firms picking up as the bid and ask gaps have closed, however, the bid and ask gaps have increased amongst media companies for various risks more related to the evolution of the Internet and uncertainty than anything else. The favor of metro fiber is the real accelerating growth of organic bandwidth, the need of optic connectivity to enable everything else and the “platform” fiber provides growth and flexibility by owning such a platform.
From a metro fiber platform, you can remain a horizontal provider of services or vertically integrate services — when the markets make sense to do so. A local fiber platform gives an operator this advantage over the risk of an application provider which is asset-light.
I would be remiss by not saying that I did get to see and say hello to many of my PE friends that have been looking to get into the metro fiber space “platform” for at least the past four years. Once again, I believe the performance by the private firm’s disclosed at this conference must make for some interesting PE introspective relative to existing portfolio companies, quality of management and execution focus.
In addition, at the conference, the recent announcement of Comcast purchasing a Chicago CLEC has caught the attention of many. The scuttlebutt at the conference was the multiple of EBITDA was well north of 10x and to expect more cable companies looking at the “small metro Telecom guys” who are fast, focused and thrifty as future consolidation occurs.
Why cable companies?
As rumor had it at the show, Comcast not only bought the CLEC “business” to go deeper into metro and establish a solid beachhead for business customers but to obtain people that know how to compete in local telecom … kudos to Comcast for thinking diversely, differently, realistically and non-insular.
I suggest, if given the opportunity and if Houlihan Lokey repeats the private company invites at their next Telecom & Media Conference, it could be well worth your while and eye-opening to attend.
I was hesitant to participate when invited, I am glad I did.
Written by Dave Rusin - Telecom Executive
Posted by wbrache | Filed Under American telecom, Dave's Corner, Fiber bandwidth, ILEC Corruption, Infrastructure and Bandwidth, Seminars and Webinars, Telecom Blogs, Telecom USA, Telecommunications bloggers, Telecommunications blogs, Telecommunications industry, Telecommunications news
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