Depending on the area, FCC study area, parent trap rules etc, a rural
sub can earn up to about $200/month even if they don’t pay their bill
or use any services. It used to be more. If you overearn, your
welfare check gets cut, but in any case the guaranteed rate of return
used to be 11.25%. And that is an ROI after cost recovery of legit
expenses. That is an EBITDA ROR. Hard to pass up a deal like that.
But the FCC is deflating that whole program. They pushed a whole
bunch of these rural companies into a lucrative A-CAM deal that pays
them a fixed amount for the next 10 years with the expectation of
nothing after that. For the “buy out” they have to agree to upgrade
to 25 Mbps service.
They did cap executive pay for a while then repealed it, I think it is
back on. And for the non A-CAM companies (it was an elective program)
they are capping investment. But still, it is around $10K per
dwelling. That may seem high, but I have personally had BLM
permitting expenses equal $40K per dwelling alone with total cost of
construction hitting $200K per dwelling.
The magic of revenue pooling, no tax dollars are harmed in this scheme...
*From:* Ken Hohhof
*Sent:* Thursday, January 12, 2017 9:51 AM
*To:* af@afmug.com
*Subject:* Re: [AFMUG] Price per sub?
Chuck, here’s a question for you.
I seem to remember checking how much Frontier paid for customers
Verizon and AT&T didn’t want, and I think it was around the same
$2000/sub number that cable companies are typically priced at. Or
maybe it was $1000 and I rationalized it in my mind as half of a cable
customer because no TV. Either way, it was a lot of money for
unwanted customers and decrepit infrastructure.
Why such a high value? Why not $1?
Are they factoring in an expected stream of USF/CAF subsidies as part
of the value of buying a customer? Or are they just being stupid? I
assume executive pay goes up the bigger the company grows, so maybe
perverse incentives. Look at the marvelous Hindenburg we have built,
it’s HUGE!
*From:*Af [mailto:af-boun...@afmug.com] *On Behalf Of *Chuck McCown
*Sent:* Thursday, January 12, 2017 10:39 AM
*To:* af@afmug.com
*Subject:* Re: [AFMUG] Price per sub?
Even if EBITDA is zero year over year, you can look at growth of
equity. If the assets are truly worth what they are booked at, then
buy for that value. I prefer net present value of future cash flows
to be a part of the analysis.
But for something that has been a going concern for some time, with
little debt and equity close to net asset value, multiples of EBITDA
are a comfortable way to value the thing.
However, in a WISP situation where you are buying the customer and
some amount of SM and AP that may or may not have much value to you,
net present value may be the way to go.
*From:*Ken Hohhof
*Sent:*Thursday, January 12, 2017 8:39 AM
*To:*af@afmug.com
*Subject:*Re: [AFMUG] Price per sub?
I think there is some validity in getting the revenue and expense
numbers separately and doing your own analysis. If you just ask for
their net income, that will vary greatly based on how the current
owners are managing the business, I think there are 3 types:
1) Being run as a startup
2) Being run as a big company / cash cow
3) Being groomed for sale
A 190 sub WISP is probably being run as a startup. First, that means
managing cashflow not profit. Second, that means any time you have
an extra dime, you spend it on expanding the business. If those are
capital expenditures, maybe they go into depreciation and get excluded
from EBITDA. But if they go into advertising, subscriber radios,
install materials and labor, etc., that gets expensed and makes the
business look less profitable.
Whatever year it was that capital gains taxes went back up, I heard a
tutorial on how to groom your business for sale before the deadline.
Basically you stop focusing on increasing revenue, and instead cut
costs, it will immediately improve your EBITDA and therefore your
valuation. I think we’ve all experienced this when something causes
us to temporarily cut back expenses, for me it happens every winter.
All of a sudden your business becomes a cash cow and looks amazingly
profitable. I also see this when I look at certain competitors who
don’t have up to date equipment, don’t maintain their network, don’t
have battery backup at tower sites, and all their customers hate them
for their slow service, frequent outages, and poor customer service.
You ask yourself, how can they stay in business? Ask yourself, if you
cut way back on expenses, and as a result lost 25% of your customers
every year, would your business be more or less profitable? It might
be more profitable. Long term, you have to believe these WISPs will
eventually go out of business, but year after year they survive. And
maybe someone will buy them because they are profitable on paper. But
they end up acquiring bad infrastructure and dissatisfied customers.
Not saying to ignore EBITDA, but I think many worthwhile WISPs that
are still in startup mode will have zero EBITDA. While if they have
spent 6-12 months fluffing up the numbers to maximize their valuation
for a sale, those better numbers may be deceptive.
One final note, when I worked at Tellabs (around 1990), I remember the
founder saying you want to make a small profit. Any more just means
you pay more taxes, and some raider can buy you with your own cash.
Better to reinvest that money in the business.
*From:*Af [mailto:af-boun...@afmug.com] *On Behalf Of *CBB - Jay Fuller
*Sent:* Thursday, January 12, 2017 9:03 AM
*To:* af@afmug.com
*Subject:* Re: [AFMUG] Price per sub?
i hear that and 4x ebidta over and over. in terms of they don't know
what ebitda does i don't even ask for those numbers. after initial
conversations i always ask for a years worth of bank statements. i've
been known to go back three years. i can plug that data into
quickbooks in a day and then pull pretty much whatever financial data
i need to pull. and it does not offend the company you are trying to
purchase who is almost guaranteed to now know that ebitda is
(earnimngs before interest tax and depreciation)
----- Original Message -----
*From:*Mike Hammett
*To:*af@afmug.com
*Sent:*Wednesday, January 11, 2017 8:07 PM
*Subject:*Re: [AFMUG] Price per sub?
I hear that is around 12x - 18x months of revenue and a heck of a lot
easier to calculate when ballparking. They know their revenue (or
well, is somewhat easy to figure out). They probably can't spell EBITDA.
-----
Mike Hammett
Intelligent Computing Solutions <http://www.ics-il.com/>
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------------------------------------------------------------------------
*From: *"Chuck McCown" <ch...@wbmfg.com>
*To: *af@afmug.com
*Sent: *Wednesday, January 11, 2017 3:16:00 PM
*Subject: *Re: [AFMUG] Price per sub?
4x ebitda
*From:*Josh Reynolds
*Sent:*Wednesday, January 11, 2017 2:14 PM
*To:*af@afmug.com
*Subject:*Re: [AFMUG] Price per sub?
How many subs?
On Jan 11, 2017 3:13 PM, "Brett A Mansfield"
<li...@silverlakeinternet.com> wrote:
When looking at buying a competitor, I'm wondering what everyone's
thought is on a price per sub? They don't do contracts and they
use the litebeam hardware.
I'm not looking for legal advice, just wondering what all of you
think is fair. This company has about a 90% take rate in the area
they're in. Their plans are $20, $40, and $50/mo.
Thank you,
Brett A Mansfield
