How Convergence of IT, Telecom and. the M&A Market

Transcription

1 Consolidation Continues: How Convergence of IT, Telecom and Managed Services Will Impact the M&A Market Monday, October 3, :30-3:15 p.m. M&A COMPTEL PLUS 2011 Orlando

2 PLEASE SILENCE YOUR CELL PHONES THANK YOU! M&A COMPTEL PLUS 2011 Orlando

3 Moderator: Gerry DeHaven, Partner Q Advisors Speakers: David Byrd, EVP, Sales and Marketing, Broadvox Rick Hirsh, CEO, Transcend United Technologies John Leach EVP, Business Sales, Windstream Dan Marquis, VP of Corporate Development, elopment West Corp. M&A COMPTEL PLUS 2011 Orlando

4 Valuation Throughout the Communications Industry Public Comparables Precedent Transactions 4.0x LTM Re evenue Multiple es x 2.3x 2.6x 2.6x 1.8x x 2.5x 1.3x 1.5x Cable CLEC & Integrated Telcos Fiber Managed Services Voice, Data & UC Source: Capital IQ As of

5 In short, software is eating the world. Marc Andreessen An increasing number of industries are being run on software and delivered as online services, and over the next 10 years many more industries will be disrupted by software. Programming tools and Internet-based services make it easy to launch global software powered start-ups in many industries, without t the need to invest in new infrastructure t and employees. Marc Andreessen Today s fastest growing telecom company, Skype, is a software company that was just bought by Microsoft for $8.5 billion. Additionally, large incumbents like AT&T and Verizon are surviving by transforming themselves into software companies by partnering with Apple and other smartphone producers. Is software eating the communications industry as we know it, and what are the implications for existing organizations seeking M&A opportunities? Source: Wall Street Journal

6 The Cloud is Transforming Models & Increasing Valuations With the advent of high-speed networks and continued migration of network intelligence into the cloud, the need for these network-based services has increased dramatically and we see that trend continuing into the future -Arunas Chesonis, Chairman & CEO of PAETEC Like many large telecom providers, Verizon is working to offer managed services via the cloud as a means to rejuvenate growth potential. Cloud computing continues to fundamentally alter the way enterprises procure, deploy and manage IT resources, and this combination helps create a tipping point for everything-as-aservice -Lowell McAdam, President and Chief Operating Officer of Verizon Verizon s recent acquisition of Terremark, a provider of managed IT solutions with data centers located across global networking hubs, exhibited a valuation of 5.4x Revenue. What is truly driving M&A related to cloud communications proven cloud capabilities or easily transferable customers? Sources: Capital IQ and Company Press Releases

7 Proprietary Technology Offers Unique Valuations Public proprietary technology providers such as 8x8 and BroadSoft continue to outperform the broader public market 500% 400% 300% 200% 100% 0% BroadSoft 8x8 S&P 500 BSFT: +268% EGHT: +107% SP500: +2.4% -100% Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 How is proprietary technology impacting M&A strategies as companies make an entrance into hosted / cloud-based services? Source: Capital IQ

8 Creating a Single-Source Solution What does consolidation and convergence mean for business customers as organizations push to acquire numerous pieces of the communications puzzle?

9 How Does Mobility Impact M&A Strategy? The four largest mobile carriers Verizon, AT&T, Sprint, and T-Mobile, together comprise approximately 93% of the total US carrier market share. How does the dominance within the wireless market impact the M&A strategy for other communications providers? US Carrier Market Share % 2% 2% 11% Verizon 33% AT&T Sprint T-Mobile 17% MetroPCS Leap Wireless US Cellular 32% Source: Chetan Sharma Consulting

10 How Are Traditional Cable Co s Preparing for the Future? At the beginning of 2010, Comcast began to differentiate itself amongst large cable providers by acquiring CIMCO Communications and New Global Telecom, both hosted communications providers to the business customers. Historically, cable companies have focused on providing TV and communications services to residential homes, yet 2011 commercial services revenue is on track to exceed $5 billion growing at a 31% CAGR to generate annual revenue of more than $17 billion in 5 years. We want enterprise customers to hand over a host of services to us Right now, we re very strong at setting up businesses with connectivity, but where we re headed is into managed services and the hosting market. -Craig Collins, Time Warner Cable How does the growing threat from cable companies impact your M&A strategy going-forward? Sources: Bloomberg, Pike & Fischer

11 Private Equity s Appetite for Hosted Services Overhang ($B B) Capital $600 $500 $400 $300 $200 $100 $- Cumulative Overhang $521 $478 $477 $439 $333 $257 $ * As of Year *As of 9/30/2010 As PE funds begin to deploy record levels of capital, what are the implications on M&A as PE is able to compete with strategics? Source: PitchBook Data

12 The Macroeconomic Effect on Technology & Communications 10.0% S&P Information Technology Index S&P Telecommunications Index Dow Jones Industrial Average Index 50% 5.0% S&P 500 Index 0.0% -5.0% -10.0% -5% -6% -8% -10% -15.0% -20.0% March-11 April-11 May-11 June-11 July-11 August-11 September-11 While the Technology and Telecommunications sectors have fared better than the broader capital markets, how and when do today s macroeconomic forces effect the outlook on these industries? Source: Capital IQ

13 CONTACT TODAY S SPEAKERS Gerry DeHaven, dehaven@qllc.com David Byrd, dbyrd@broadvox.com Rick Hirsh, rick.hirsh@transcendunited.com John Leach, john.leach@windstream.com h@ Dan Marquis, djmarquis@west.com M&A COMPTEL PLUS 2011 Orlando

14 THANK YOU FOR ATTENDING! M&A COMPTEL PLUS 2011 Orlando