At Cloud Communications Summit at ITEXPO this week in Austin, Q Advisors a luncheon keynote. Q Advisors has been involved in quite a few M&A transactions this year with Cloud Comm companies. Micheal Quinn was the speaker. He said a lot of stuff that I have been saying (so I naturally liked the guy, even though he is a banker.)
Key factor for bankers: Size Matters! So does ARPU (average revenue per customer.)
Wireline consolidation is coming because there is no organic growth in our industry. The CLEC's haven't had organic growth in a while. Most buckets are flat or declining for wireline, so it's buy stuff to move the needle.
Best quote I agree with: "Paetec got tired." Back when Paetec bought Allworx, I made a comment that Paetec being public was going to be really tough - too challenging perhaps.
The multiples being paid out are 4-6x. CLEC's trade at 7x, but fiber trades at 9x. Paetec bought for 1.1x. One Comm for 0.6x
Who's buying? CLEC's and ILEC's since "Acquisitions are just about features right now." But Dell and HP might buy a UC shop."
Quinn said that UC matters. International is untouched - Asia and LATAM specifically.
"No shop in the UC game is at $100M"
Most UC sales are still under 25 users." at 33% of all UC sales. 25-50 seats is at 29% of sales.
Quinn said, "Under 25 will lose to cable." I say, Definitely. They own the network. They can give away the bandwidth. Deeper pockets. Brand recognition. "CLEC's are in trouble by cable giving away bandwidth," especially since this was the sweet spot for many CLEC's - 10-25 employees.
Also, under 25 can be bought online via packet8, Speakeasy, FreedomVoice, RingCentral. Makes a CFO wonder if a sales force is needed. (A sales force IS needed - an effective one, bringing in big ARPU).
The UC sale should be about "cutting staff", according to Quinn. (Typical banker.)
"Cbeyond has not moved the needle with cloud.... Packet8 has more market cap." Those are interesting statements.
"Other CLEC's have no strategy for cloud!"
"Organic growth is non existent!"
- ARPU under $1000 is nothing.
- M5 is all one year contracts, but buyers want multi-year contracts to lessen churn.
- Size of customers. Multi-location. CAPEX. Churn. ARPU. Customer Acquisition costs.
- Service offerings. Customized?
- CPE? How sold and booked.
- Back office and Management.
- Sales channel
- Ability to offer network.
- Integration options
Most interesting factor: Ink to bill cycle, which relates to pre-install churn.
A very fact filled talk. You can poo-poo it if you want, but bankers have a different view. If you don't need money and don't want to sell (or buy), you can ignore this. If you want financing or want to sell, these ducks need to be in order.