ITW: New business models needed to attract financial industry
17 May 2017 | Jason McGee-Abe
The ability to find innovative business models and tell a compelling story could be the lynchpin for attracting financial players in the wholesale industry, said Feddo Hazewindus, CEO of iBasis.
Hazewindus was speaking at the last panel of Day 3 of ITW - led by Alexandre Pebereau, CEO of Tofane, formerly head of Orange International Carriers - titled “Boost, Consolidate or Innovate, Cash Is Available to Fund the International Carriers”. He was joined by PCCW Global’s CEO Marc Halbfinger.
The investment canvas has evolved in the last decade, noted Hazewindus. “Ten years ago, the issue was not how to get investment, but how to get [less]. There were no problems getting funds,” he said.
That has since shifted. Today, expectations of the market are “completely different” against the competitive landscape of hyper connectivity and digitalisation. Increasingly, the ability to “tell the investment world a compelling story” - perhaps one surrounding the internet of things or the topical issue of security - is imperative, said Hazewindus.
"The abundance of cash has reached the international communications industry,” said Alexandre Pebereau, CEO of Tofane, formerly CEO of Orange Carriers, as he described how financial partners have identified the business opportunities, speeding up innovation, digitisation and/or optimisation.
Pebereau highlighted a number of big ticket examples, including: Cataleya’s innovation project, in the approximate €10 million ticket bracket; €100 million tickets, such as Voxbone’s venture and growth; and €1 billion tickets for consolidation and carve-outs, seen, for example with Telxius and the combination of Telefónica subsea cables and telecom towers.
“The valuations have now become quite noticeable and similar to other industries', with multiple above 11x EBITDA in most of the last publicized deals,” Pebereau added.
Compared to deals struck in the Silicon Valley belt, acquisitions within the wholesale telecoms space just do not attract the same so-called “pazsaz”, said Halbinger.
PCCW Global began exploring potential acquisition opportunities five years ago and saw “a lot of opportunities” in Israel. However, “ridiculously high” valuations proved too much of a barrier and the company looked to Greece as the next opportunity. PCCW Global acquired Crypteria Networks, a European company offering security-as-a-service solutions, in 2014. Halbfinger said the company possessed “tremendous skillset” and “fantastic algorithm capability” but still failed to capture the attention of bankers.
The panel went on to discuss their acquisition strategies while acknowledging the rapid technological evolution and increasing consolidation that is gathering place.
“Business development is a lot of hard work. You need have to faith and keep plowing away. We are living through a period of dramatic technological change, and will need to reshape the way we look at the current business,” said Halbfinger.
A system of checks and balances in evaluating risks as well as an appropriate understanding of technological trends is crucial in the decision-making process. The role of finance organisations is to provide an offset, he said. As “operational aspirationals”, the onus is on M&A leads to convince its finance unit of the potential acquisition value. “Sometimes it’s hard to get it approved… but it’s well-earned,” said Halbfinger.
Standing up to the board is imperative, said Hazewindus, and the tireless process of going back “seven, or even eight times” to the board is necessary. “A healthy skepticism is needed in this process. I see it not as an obstacle but the right way to go about it,” he said.
KPN acquired iBasis in 2009 and while integration took longer than anticipated, the group would go on to “expand its geographical reach and scale economies”. “I cannot emphasise enough the importance of the strategy and the ability to [convey your vision] to the board and company. Executing within your strategy is key,” said Hazewindus.
He said the decision not to go ahead with an acquisition too can be viewed as a success. “Have the guts to see it as a success because you avoided the misery,” he challenged.
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