In general terms, M&A activity has the goal of generating growth for the business with growth defined as increased revenues. Today, for example Level 3 received positive comments regarding their acquisition of Global Crossing even though the increase in revenue will not result in a profitable bottom line. However, the revenue increase will decrease their losses and position them to be profitable in two years.
Other consideration for M&A activity include customer acquisition, geographical expansion and technology platform addition. Customer acquisition and geographical expansion have been reasons to acquire companies for years. However, there does seem to be a broader market push by some to acquire technology platforms. Cisco, HP, Oracle and other high tech companies have always acquired other companies to attain a technology offering that they decided not to develop themselves. However, consider Paetec’s acquisition of Allworx, or West’s acquisition of Smoothstone. These were both platform additions to further a business strategy.
Cloud computing, hosted VoIP and Unified Communications are key considerations for much of the current M&A activity. Clearly, the Broadvox/Cypress Communications merger was to address all three. In addition to me, the members of the panel were from Transcend United Technologies, Windstream, and West Corp. The moderator was Gerry DeHaven with Q Advisors. While I do not think we broke any new ground during the discussion, I do believe we demonstrated that M&A activity in telecom is very robust and will increase over the next few quarters or years.
COMPTEL overall offered little new in the way of trends or industry drivers. However, the deal making appeared to be as vigorous as ever. Even though the show is primarily wholesale and carrier to carrier, I found myself in meetings discussing how to expand our direct and channels sales efforts. We may not need to exhibit at COMPTEL but we do find it very valuable to attend.