Acquire or be acquired?

Date: Mon, 02/27/2012 - 20:39 Source: By Andrew Skinner, Relationship Director, Barclays Corporate Technology, Telecoms & Media

Whatever a service provider’s primary business – be it fixed lines and calls, hosted or managed services, or mobile distribution – all are looking to expand their service portfolio and become the destination company for all our communications needs. With smartphones entering the workplace, mobile is increasingly difficult to ignore

Acquire or be acquired? Andrew Skinner, Relationship Director, Barclays Corporate Technology, Telecoms & Media

This year’s Mobile World Congress will provide us with a significant indicator of confidence in the market, and the telecoms sector in particular. Whether the show is dominated by demonstrations of the latest smartphones or discussions about how to monetise LTE networks, it’s clear that growth in the telecoms industry – whether organic or through M&A activity – is a key challenge for companies in 2012 and beyond.
Growth of this kind presents a further challenge in terms of securing the right form of external financing – it is essential that service providers choose a financial partner that has a good knowledge and understanding of the industry and is able to tailor packages based on this. Growing a business in this market will almost always involve using some debt in the short term. For me, the volume of revenue generated from recurring income and fixed term contracts, often collected by direct debit, makes this a stable market for lending. It is therefore possible to structure deals that take into account the service provider’s medium term goals, whether that is organic growth or acquisitions.
Daisy Plc, is a prime example of the market trend for acquisitions, buying companies to supplement its original fixed line and wholesale businesses, and enabling the group to successfully expand into mobile distribution, hosting and SaaS. Following an aggressive acquisition strategy that began in 2009, the company reported revenues of £176 million for the first nine months of 2011.
Other providers such as Chess Telecom, have also invested heavily in their existing business to grow it organically, for example through added investment in R&D to develop new products and services, or by setting up new teams to grow existing capabilities. This enabled Chess to broaden its business beyond traditional lines and calls to include mobile, VoIP and broadband.
In these situations, service providers will need to partner with a bank that understands investment will need to increase in the short term, but that this will often pay for itself in the end.”


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