Fixed Wireless Business

ISP For Sale: Make An Offer

In a down economy, healthy companies are learning that their less responsible competitors are for sale at good prices, and ISP brokers are back in business.

by Gerry Blackwell [February 25, 2003]

In the six weeks after 9-11, Internet mergers and acquisitions broker Tom Millitzer, president of Milwaukee, Wisc.-based New Commerce Communications Inc., had exactly two phone calls.

"The business just died," Millitzer says.

It wasn't only 9-11. It was the economy, it was the dot-bomb aftermath. Nobody had any money and certainly not for buying ISPs. But all that started to change late last year. Now Millitzer is juggling an average of nine or ten deals at any one time, and most of them are going through.

"Since the first of the year, buyers have been coming out of the woodwork," he says. "Sellers have been doing the same thing. And the sellers are being a little more realistic."

So is it a buyer's or a seller's market? It's a "reasonable" market, Millitzer says.

Gone are the days when sellers could command prices of $600 per subscriber —prices that didn't make economic sense, he notes. Today most ISP businesses are going for about .6 to .9 times annual revenues.

The shake-out in the ISP industry is pretty much over, Millitzer says. The companies that weren't going to make it have died or been snapped up. What's left are the companies that are making it or at least treading water.

There are always exceptions, of course. Like the deal Millitzer brokered last December in Del Rio TX between two local WISPs slugging it out for dominance in this town of 44,000 on the Rio Grande border with Mexico. The seller, as it turned out, was on his last legs.

"That was actually a pretty small deal," Millitzer says dismissively.

Still, it's an interesting case in that it reveals how much a part of the business buying and selling companies can be. The competitive conditions that gave rise to it are also not untypical of what must be happening in a lot of over-saturated markets.

Ex-air force pilot and entrepreneur Joe Hyde started DelRio.com almost as a hobby back in 1996 when he was still in the air force. He sold it a couple of years later when he was transferred out of Del Rio.

Hyde came back to Del Rio to settle a few years later after leaving the air force, and offered to invest in DelRio.com again. The company at that point had already been through three owners!

The first after Hyde thought he could aggregate rural ISPs, then sell them off to an EarthLink. When investment funds dried up, he bailed. The next owner's strategy was to build an empire of ISPs in communities on the fringes of major cities in Texas. Not a bad idea, but the economy killed that one too.

After the fourth owner rebuffed his offer of investment funds, Hyde decided to start a local online news service. He subsequently built up DelRioLive to the point that his subscriber base was slightly larger than the local newspaper's.

When DelRio.com refused to even link to the site any longer, supposedly because DelRioLive was causing too much controversy, Hyde turned around and started his own ISP and later WISP.

He already had some wireless knowledge picked up while in the Air Force, but he partnered with an established San Antonio, Tex.-based WISP to gain practical experience and get the wireless service going in Del Rio. After it was a success, he bought out his partner.

By the fall of 2002, DelRio.com and DelRioLive.com had been going at it hammer and tongs for over a year—and Hyde was winning.

DelRio.com was still bigger on the dial-up side. Both were signing up about the same number of subscribers overall each month—30 to 40. But DelRio.com had a horrendous churn rate of almost 25 percent, mainly because it didn't pay enough attention to customer service, Hyde says.

Hyde's company was hammering his rival's on the wireless side. By late last year DelRio.com only had about 23 wireless subscribers, while DelRioLive had 120 and growing.

"In the end, we weren't as big as them," Hyde says. "But we had the momentum. We were gaining, they were losing."

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