My Take on Acquisitions 2010
December 31, 2009
Welcome to a new year of fun and excitement in our ever-evolving world of Telecom charades and misdirection! I do expect our industry to grow this year.
Speaking for AFS, we have about 80% of our new MRR plan booked and awaiting delivery over the next several months. Our sales professionals will pick up the remaining 20% by June or July, and then, we will focus our attention on the 2011 operating plan. For our tenth year in a row, I am happy to say, we are poised for double digit, continuous revenue and margin growth. (Writer’s note: Any monkey can grow a revenue line by cutting prices—the issue of staying in business and providing quality service is a function of the quality of revenue, margin growth, and of course, churn rates).
I anticipate a busy mergers and acquisition year ahead of for all of us. AFS will be participating as a buyer, if and when the right opportunities fit our M&A strategy and financial model. We have a highly defined model for M&A – you won’t see us acting like a kid in a candy store – we have focus, strategy, and discipline.
AFS has completed a few acquisitions in the past and they all have turned out very successful because of our model and restraint. We have lost more opportunities than we have gained because of our disciplined approach. Typically, once we acquire a property, we have it fully integrated and profitable within 60-90 days.
I wanted to share a few tips (in no particular order) about how we view acquisition opportunities and how they translate into benefits for our customers:
1. Business model. We first make sure the property fits our model. If not, we pass…plain and simple.
2. Numbers. We look at the financial numbers to determine if we can make the company work financially. First, before we set a price or price range, we try to determine what needs to be invested into a property to make it healthy. This step is a major factor most people ignore, especially if they are or behave like a financial buyer.
3. Culture. The business is being sold for a reason. Those reasons can vary from bad strategies and leadership to poor execution or an investor’s exit. All of the mechanical challenges can be fixed so we really want to delve into the core values and principles that serve as the center of the business. We look for a customer-centric culture – we avoid the cultures that worship the CEO as some type of deity.
4. People. In my opinion, this step is where many CEO egomaniacs and financial buyers lose it. At AFS, we don’t have a “slash and burn” mentality when it comes to the employees. We recognize, especially in smaller companies, that a lot of knowledge about the business resides in the heads of its employees. This knowledge is a major intangible that should be respected…or you might face losing it entirely if you slash and burn to meet some ill-conceived financial model!
5. Best Practices – Objectivity. If a company we acquire does something better than us, we will “shoot our own dog” and adopt their methodology. Many slash and burners feel they already run a perfect operation and no one could possibly be better than they are – after all they aren’t the one for sale (so their logic goes).
6. Quality of Customers. We really don’t care about volume and low margin customers with zero loyalty (waiting for the next lowest price rabbit). We usually factor them into the financial model as a future forced churn.
7. Network Quality. We only acquire companies that own fiber optic networks with an emphasis on metropolitan services. To elaborate, I mean they own the sheath containing all the fibers…not a “network” consisting of 2-4 strands of fiber that has been IRU’d. So many PR companies will spin M&A announcements to sound like a company has acquired the network from Company X. But, in reality, they bought a company living on an IRU…or in some instances just an IRU with customers on the fiber!
8. Quality of the Sales Team (Part I). We sell network reliability, on-time delivery, on-budget delivery and proactive customer service. A sales team must adhere to these value propositions first as opposed to price. We churn low price sales champions because they are acting primarily in their own interests. This type of attitude ignores the true value proposition of AFS and our culture—delivering reliability each and every day. Telecom network reliability is NOT a commodity and it has not been for over 100 years. Let me repeat, real network reliability is not a commodity…contrary to the opinion of many Wall Street analysts who believe Telecom services are a basic commodity like wheat or corn. For example, when your Gmail is down for 36 hours or your point-to-point network connection is out for a business day, what is the cost of not providing network reliability for the customer? So many people are swayed by low price and believe that all networks are equal…and the behind-the-scenes people (or culture) who support the customer are a commodity as well.
9. Sales People (Part II). We avoid sales representatives that have “rabbit” resumes. They seem to jump from hole to hole every two years and wind up with yet another carrier. For customers or prospects, this sales person is not acting with your best interests in mind. Instead, they are using you for a well-disguised, superficial relationship to advance their own interests of earning commission. They will likely tell you anything to get you to switch to their new employer. We avoid the rabbits and so should a customer or prospect. By the way, the rabbit and other sales people are separated by this truth: the rabbit is simply performing a job whereas the others are sales professionals that have developed skills and business acumen (and place your needs above their commission goals).
10. We Don’t Lie. AFS will not make empty promises or say things a seller may want to hear (staff, business model, etc) only to blind-side the acquisition after the ink dries on the closing documents. A common practice is to say one thing but do another once the deal is inked. This dishonesty hurts the customer base you just acquired.
There are more points but following these basic rules seems to work well for us.
2010, no doubt, will be an interesting year. Demand for local bandwidth will continue to grow because the economy has caused a pent-up demand bubble where many customers need more bandwidth and access. I believe recent economic woes and tight budget constraints forced many companies to delay certain IT aspects of their business. Each year, reliable network connectivity becomes more important than it was in the year prior, and I predict, this trend will continue for years to come. Historically speaking, economic hardship and “doing more with less” has resulted in a bandwidth boom as economic conditions improve. Doing more with less places pressure and demand on communications networks…the networks rethink expenditures and save money on expenses such as travel, inter-company communications, intra-company communications, mobility, document management and knowledge-sharing.
Think about this nugget as we enter 2010 – how long could your business survive if your communications provider has service outages of 2 hours, 4 hours, 18 hours, 24 hours or maybe 3 days? These major downtimes have occurred in recent years.
Just make sure you know who actually OWNS the network your business uses…and don’t be fooled by branded resellers, asset-light carriers or IRU’d strands someone may tell you is a “network.” You need to see the physical network map and proof that your carrier owns the infrastructure. And, lastly, stay away from those sales rabbits!
Written by Dave Rusin - Telecom Executive
Posted by wbrache | Filed Under American telecom, Dave's Corner, Telecommunications industry
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Dave:
With 14 years of successful high-end telecommunications sales, I must comment on your ‘rabbit’ take regarding sales people.
In my tenure, I have worked for 4 companies, 2 of which are very large national/global providers and 2 of which are more regional in focus. I’ve always been a ’straightshooter’ with my clients and represent their best interest while also protecting my employer. My job as a sales professional has and always will be to become an advocate for both my employer and my clients. As you are aware, telecom- no matter where you are in th country-is a very small and close knit community of folks the have been successful year-over-year, those folks that do enough to hang on, and then the rest of the sales force that are a revolving door of failure or mediocrity. Though I can understand your take on staying away from those sales rabbits that jump from company to company, it is unfair not to look at it from our side. Sales folks are always on the frontline, living life month to month, quarter to quarter, etc……. The rewards are obviously in the form of commissions and the knowledge that you actually make a difference to your client and your company.
After reading your columns, I’ve never seen you as an Ivory Tower kinda guy. Give us frontline folks a break by realizing that the rabbit mentality is often times a necessity in order to continue to succeed and feed our families in a very difficult and ever-changing industry. We don’t have the luxury to sit back and collect large paychecks without having our necks on the chopping block at anytime.
Here’s to a great 2010 for everyone! Hopefully the bottom-feeders of the industry (specifically on the IP and metro front) either raise their prices to market level or maybe just go away!
Happy New Year.