Fixed Wireless Business

ISP For Sale: Make An Offer —continued

One town, two companies, six transactions—and counting! There is still one other ISP in Del Rio, now something of a lame duck, according to Hyde. He's not actively looking for more acquisitions, but he would consider it as a way to move into another similar market nearby.

The dos and don'ts of due diligence
The circumstances around the DelRio.com deal may have been specific to the local competitive situation and atypical in Millitzer's portfolio, but the deal came just when his brokerage business was starting to rock again.

Now he says, "There seems to be a lot of pent-up demand. So many companies have said to me recently, 'Our board wants us to grow by $4 to $5 million in revenues this year.'"

Acquisition is not the only way to achieve that goal, but it's the fastest way. "And time is value," Millitzer points out. One other reason ISPs buy ISPs is to execute their expansion plans—in many cases delayed until now.

"Certain companies, if they're smart, have a game plan," he says. "They want to be national, or they want to be a discounted national, or they want to be a regional player or they want to be a business ISP. And if we have a company that meets their needs, they'll consider it."

In the current economy, a company that might not be actively looking for acquisitions can come across an opportunity that is just too good to pass up.

It's often possible to significantly reduce operating overheads by consolidating, especially if the buyer and seller are geographically nearby, Millitzer notes. In one current case, two Midwest CLECs competing to buy one of Millitzer's clients figure they can transform the company from a financially mediocre operation to a rich cash cow, just as a result of cost savings from consolidation.

Hyde admits his decision to buy DelRio.com was "about 50-percent defensive"—he didn't want anyone else coming in and buying it. But now that he's got it he's realizing his acquisition can be a significant asset.

He is consolidating points of presence, eliminating the old DelRio.com POP—along with its rent and most of its capital equipment and monthly telecom costs. He'll end up with one POP with a few more lines coming in—and a lot more subscribers.

Those savings along with the effects of better management will make DelRio.com a much better deal than it might have looked on the surface, he says.

Millitzer almost always represents the seller, as he did in the DelRio.com deal. They mostly come to him. He's been doing this since 1997, after first building a business doing the same thing in the cable TV industry.

"I've gotten to know lot of people [in the Internet business]," he says. "People find me through the Net and by word of mouth. We do a few press releases."

What does an M&A broker actually bring to the process?

Millitzer sees his main job as gathering, organizing, and presenting information about his client so that buyers can tell almost at a glance whether this is a company they're interested in buying. The final product of that effort is a 20- to 30-page offering memorandum with a graphic executive summary that buyers can skim in less than five minutes.

But like any broker, Millitzer's value to his clients is also that he can find buyers. Many are companies he already knows about. He has over 300 in his database, along with notes about what they're looking for. When a seller comes to him, Millitzer starts by searching the database and playing matchmaker. He'll also beat the bushes to find new buyers if necessary.

"We contact as few as 20, as many as 100 companies that might have interest [in our client]," he says.

His goal is to deliver multiple offers to his client in a relatively short period of time—usually about two weeks.

Then the negotiations begin and Millitzer takes the part of the client. The goal is to negotiate the best deal—which is not necessarily always the highest price, he notes.

For example, in one case he's working on right now, a bank is selling off an ISP it started several years ago to encourage customers to get on the Net and do their banking online.

The ISP's customers will still be the bank's customers. It doesn't want to sell the business to just anybody because it wants to make sure its customers continue to be well served. So it may be prepared to sell for less.

Although he represents the seller, buyers also benefit. When Hyde wanted to see all the contracts DelRio.com had in place, Millitzer "was the bulldog who went and got them," Hyde says. "He helped me a lot with my due diligence too."

Nothing in the world of commerce is more dramatic and exciting than buying and selling businesses—the tense negotiations, the big bucks changing hands, the new broom coming in after the transaction. And right now in this industry, it's apparently happening virtually every day.

Hey, psst! Got an ISP you want to sell? Tom Millitzer can probably sell it for you.

—End

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