Consolidation Continues:
Consolidation Continues:
How Convergence of IT, Telecom and
Managed Services Will Impact
Managed Services Will Impact
the M&A Market
Monday, October 3, 2011
2:30-3:15 p.m.
PLEASE SILENCE YOUR
PLEASE SILENCE YOUR
CELL PHONES
THANK YOU!
THANK YOU!
Moderator: Gerry DeHaven, Partner Q Advisors
Speakers:
David Byrd, EVP, Sales and Marketing, Broadvox
Rick Hirsh, CEO, Transcend United Technologies
John Leach EVP, Business Sales, Windstream
Dan Marq is VP of Corporate De elopment West Corp
Dan Marquis, VP of Corporate Development, West Corp.
Valuation Throughout the Communications Industry
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4.0x 4.5 Public Comparables 2 8 3 0 3.5 4.0 e s Public Comparables Precedent Transactions 2.3x 2.6x 2.6x 2.5x 2.3x 1.8x 2.8x 2.0 2.5 3.0 e v e n ue M u lt ipl e 1.3x 1.5x 1.0 1.5 LT M R e 0.0 0.5Cable CLEC & Integrated T l
Fiber Managed Services Voice, Data & UC Telcos
“In short, software is eating the world.”
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– Marc Andreessen
• An increasing number of industries are being run on software and delivered as online services, and over the next 10 years , y many more industries will be disrupted by software.
• Programming tools and Internet-based services make it easy to launch global software powered start-ups in many industries,
ith t th d t i t i i f t t d l Marc Andreessen
without the need to invest in new infrastructure and employees.
• Today’s fastest growing telecom company, Skype, is a software company that was just
bought by Microsoft for $8.5 billion. Additionally, large incumbents like AT&T and Verizon are surviving by transforming themselves into software companies by partnering with Apple and
Marc Andreessen
surviving by transforming themselves into software companies by partnering with Apple and other smartphone producers.
Is software eating the communications industry as we know it, and
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what are the implications for existing organizations seeking M&A
opportunities?
The Cloud is Transforming Models & Increasing Valuations
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• “With the advent of high-speed networks and continued migration of network intelligence into the cloud, the need for these network-based services has increased dramatically and , y we see that trend continuing into the future” -Arunas Chesonis, Chairman & CEO of PAETEC
• Like many large telecom providers, Verizon is working to offer managed services via the cloud as a means to rejuvenate growth potential
cloud as a means to rejuvenate growth potential.
• “Cloud computing continues to fundamentally alter the way enterprises procure, deploy and manage IT resources, and this combination helps create a tipping point for ‘everything-as-a-service” -Lowell McAdam, President and Chief Operating Officer of Verizon
• Verizon’s recent acquisition of Terremark, a provider of managed IT solutions with data centers located across global networking hubs, exhibited a valuation of 5.4x Revenue.
What is truly driving M&A related to cloud communications – proven
cloud capabilities or easily transferable customers?
Proprietary Technology Offers Unique Valuations
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• Public proprietary technology providers such as 8x8 and BroadSoft continue to
outperform the broader public marketp p
300% 400% 500% BroadSoft 8x8 S&P 500 0% 100% 200% 300% BSFT: +268% EGHT: +107% SP500: +2 4% -100% 0%
Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11
SP500: +2.4%
How is proprietary technology impacting M&A strategies as
companies make an entrance into hosted / cloud-based services?
Creating a Single-Source Solution
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What does consolidation and convergence mean for business
customers as organizations push to acquire numerous pieces of the
How Does Mobility Impact M&A Strategy?
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The four largest mobile carriers Verizon
• The four largest mobile carriers – Verizon,
AT&T, Sprint, and T-Mobile, together comprise approximately 93% of the total US carrier market share.
11%
3% 2% 2%
Verizon
US Carrier Market Share - 2011
How does the dominance within
33% 17% 11% Verizon AT&T Sprint T-Mobile MetroPCS
How does the dominance within
the wireless market impact the
M&A strategy for other
communications providers?
32%
Leap Wireless US Cellular
communications providers?
How Are Traditional Cable Co’s Preparing for the Future?
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• At the beginning of 2010, Comcast began to differentiate itself amongst large cable providers by acquiring CIMCO Communications and New Global Telecom, both hosted
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communications providers to the business customers.
• Historically, cable companies have focused on providing TV and communications services to residential homes, yet 2011 commercial services revenue is on track to exceed $5 billion
i t 31% CAGR t t l f th $17 billi i 5
– growing at a 31% CAGR to generate annual revenue of more than $17 billion in 5 years. • “We want enterprise customers to hand over a host of services to us… Right now, we’re
very strong at setting up businesses with connectivity, but where we’re headed is into managed services and the hosting market ” -Craig Collins Time Warner Cable
managed services and the hosting market. Craig Collins, Time Warner Cable
How does the growing threat from cable companies impact your
M&A strategy going-forward?
Private Equity’s Appetite for Hosted Services
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$521 $500 $600 B ) Cumulative Overhang $257 $333 $439 $478 $477 $200 $300 $400 Overhang ($ B $197 $-$100 2004 2005 2006 2007 2008 2009 2010* Capital As of Year As of Year *As of 9/30/2010As PE funds begin to deploy record levels of capital, what are the
implications on M&A as PE is able to compete with strategics?
implications on M&A as PE is able to compete with strategics?
The Macroeconomic Effect on Technology & Communications
gy
5 0%
10.0% S&P Information Technology Index
S&P Telecommunications Index Dow Jones Industrial Average Index S&P 500 I d -5.0% 0.0% 5.0% S&P 500 Index -5% 6% -15.0% -10.0% -6% -8% -10% -20.0%
March-11 April-11 May-11 June-11 July-11 August-11 September-11
