The people doing the session clearly must have been buyers looking for
suckers, or individuals looking to make a killing on the resale themselves.
Now if someone has a low volume, poor reliabilty wifi network, where the
salary to manage it is more than the revenue, and the owner is looking for a
full cash buyout, thats a different story, and sure that fits the bill of a
6 month or 1x annual buyout. In other words, nobody wants to buy someone
else's problem. At most they'll offer to take over the problem, if it
doesn't cost them much cash, (investment cash is hard to come by) if they
can leverage the assets to make their own WISP more profitable, (taking
revenue, getting rid of all the duplicate costs). Sure every body is looking
for the failing WISP that has had enough, and willing to sell on a fraction
of the dollar of what its worth. Cogent has done miraculously by buying
companies out of bankruptcy, at pennies on the dollar. The fact is, most
WISPs are regional, and if they have not created enough value in their
network to attract buyers that will pay for it, want out for what ever
reason, 90% of the time inadequate funding and tapped out, they will almost
always give the WISPs to another WISP at next to nothing, to save the
embaressment of defaulting on agreement, shutting off community residents,
and admit failure publically. I believe because there is such a high rate
of failure, or lack of growth by WISPs in the WISP industry, there are
likely to be a lot of WISPs in a vulnerable possition, willing to sell for
very little.
However, Don't let that scew the truth about what a WISP can be worth.
The only large scale comparable today is NextWeb's sale to Covad, which went
for close to 2x annual. At minimum a successful WISP should have an
evaluation of 2x, using NextWeb sale as a comaprable, suitable for
recognition from an entity like a bank. Also understand that although
NextWeb had acheived large scale worthly of aquisition, they were not an
ideal company to buy from my perspectuve because I felt they were a company
in trouble, with various problems that might have given them a lower
evaluation. Also a company that had less growth opportunity based on already
saturating the marketing to their markets. At minimum, a WISP should have an
evaluation equivellent to the investment that they made in their network to
build it, parts and labor. Often that costs, exceeds what a 2x-3x offer
would be, based on the fact that most WISPs are at an investment/growth
stage of their network. The golden question someone must ask is not what
your business is worth on paper (financial statements) today to you. It is
what is your business worth to someone else, the buyer. That is how you get
the 4x plus offers. You need to build your business to be valuable to
others.
You should have target buyers before the business ever starts. Thing to
remember is that WISP rarely ahve all assets required for large scale
growth, but they have the most valueable asset, in palce infrastructer in a
time to market industry, first in preferred broadcast sites, and experience
and knowledge to get the network built to the stage that it can survive and
grow. Money is hard for WISPs to find, almost completely unavailable for
guys like me. But the reality is Money is cheap to those that have it, and
actually a commodity. And money guys are desperately looking for places to
spend there money that can have a high return. Thats why Banks are sending
0% credit cards and loans out. The WISP industry is high risk, but it is
very likely to have HUGE exponential growth over the next 5 years, for those
that can last through it as one of the survivors. Great opportunity for long
term investors that make the right choices, and great opportunity for
companies to get large multiple for quick resale within 1-2 years of
purchase. A well run WISP is an extremely hot item for putting on the
market for sale. Some investment companies have privately stated that they
consider wireless technologies in their top 5 areas to look for growth
industries to consider investing in. Remember nobody makes money buying
companies that have already went through the growth stage. Sure thing
business generally can't be sold for to much more than they were bought for.
In other words, investment companies want to buy at 1x, inject money to
facilitate growth, and resell for > 4x. Many times looking for 500% return
on investment. WISPs can possibly deliver that, with enough time.
I'd also argue that a company that has saturated its market and acheives
higher revenues, may be less valuable in terms of multiples of revenue, than
a company that build a network ready to serve,with few customers, but the
potential for MANY MANY more, as the guy buying will likely be able to
obtain revenue growth better after purchased. They want to know that there
is room for growth and reason for investment. Otherwise they are just simply
buying cashflow, which is a commodity in the investment world.
A WISP simply selling cash flow will undusputedly get a LOW valuation. A
WISP needs to sell and must posses real poitential, to get high multiples.
I'm also aware of a number of WISPs that have privately sold for or been
offered in the range between 4x and 6x annual revenues. Unfortuneately, I
can't share details based on non-disclosure. Its what every buyer does not
want you to know. If you have a advisor encouraging you to put your comany
on the market for 1x to 2x, one of two things is happening. 1) You are in
trouble financially, and its better to get something than nothing. or 2)
They don't truely understand this industry, and you need to find another
advisor.
Two havee a high valuation you must prove the following things....
1) That the business can sustain itself, after the sale, if you are no
longer involved to run it.
2) That the company is capable technically to be managed from a remote third
party call center.
3) That it is cash flow positive, and would not increase/incrue debt if it
were to sits there, and inactive in growth.
4) That everything is documented. Down to inventory, Technical/customer
configurations, deployment methods, locations of infrastructure, etc
5) Strong contractual agreements that guarantee long term continuation of
operations at current fixed defined costs.
6) Demonstrate unique assets that allow you to have a competitive advantage.
(Could be preferred broadcast points, roof rights, landlord relationships,
exclusive rights, etc)
7) Prove positive reputation in the marketplace, or name recognition as a
dominent provider of quality services.
8) Show that your company will be a threat to any other company that tries
to install side by side and attempt to compete. In other words, that its
more profitable to buy you, than compete against you. In most cases that you
have the price advantage, because it costs you less to sustain operation for
what ever reasons. (equipment already paid of, fewer hops, more economy to
scale already, Software systems in place, Etc)
9) Demonstrate the viabilty of your company to fullfill several core markets
of growth potential. Prove business case. (That the market exists, and you
have capabilty to tackle them).
10) HAve the formula for success spelled out and proven through case study.
How is the buyer guaranteed to make a return on investment.
11) prove that you are not desperate, can sustain operations long term, if
you do not get the offer you desire, and capable to hold out for the right
offer.
If you can do these things, it does not matter how small you are, or how
profitable you are, or how much revenue you have.
The other core thing, is people do not want to buy you out all cash. Why
would you want to sell your stake, if your company was valueable? If it was
a good investment, why wouldn't you want to be a part of it? People want to
spend money in a way that will improve a companies value, not just take over
someone elses investment. So high multiple deals will likely be paid a
large part in stock. However, if your company really has the value that you
represent, the owner will probably make more in the long run, keeping some
of the stock than just an all cash sale. Its very feasible to be able to do
a sale, where the original stock holder holds signifant control until
they've been compensated for their initial investment adequately. THats
another issue all togeather.
Tom DeReggi
RapidDSL & Wireless, Inc
IntAirNet- Fixed Wireless Broadband
Mark at the Chicago Wispnog Charles put on, there was a couple investors
that bought and sold wisps. We had a session on it.
The way they described the valuation of a wisp brought the price down well
under 1x yearly revenue. More like 6 months of revenue cash buyout. They
picked everything apart and devalued based on what ever they could find.
And there was a couple of wisps who sold their operation for about 1x
yearly. One guy said the buyer wanted some of his commercial subs and took
the whole thing and even hired him and another seller said he wanted to
toss in the towel after fighting with the telco, get a law degree and
donate the rest of his life to fighting the telco's I seem to remember
that he sold for under 1x with some cash now and paper. Both of these guys
were 802.11b wisps. And I think both are still on some of the wireless
lists. You might want to ask on the isp-wireless list or part-15 list as
well.
Seems that wisps with contracts to their customers and a network of
Alvarion, Trango, Canopy or similar was more appealing and had a higher
value.
Maybe this is helpfull.
How many subs do you have?
George
Mark Nash wrote:
Thanks Marlon... For the record, it's not a rough split between me and my
partner. He's got a more profitable business going, he's put up money
for the wireless business, he's 53 and going to retire when he's 55, so
he wants to focus on his other business. That's what I would do if I
were him. The money he put in is easy to account for and pay back, but
he has also put in a considerable amount of unpaid time and he'd like to
realize some benefit from that, and I should honor that in the split.
Makes sense. So I'm trying to figure out what's reasonable to offer for
his part in all of this.
Mark Nash
Network Engineer
UnwiredOnline.Net
350 Holly Street
Junction City, OR 97448
http://www.uwol.net
541-998-5555
541-998-5599 fax
----- Original Message ----- From: "Marlon K. Schafer (509) 982-2181"
<[EMAIL PROTECTED]>
To: "WISPA General List" <wireless@wispa.org>
Sent: Thursday, April 27, 2006 3:45 PM
Subject: Re: [WISPA] Business Value
Hi Mark,
I don't have time to get into the deep details right now. I can
probably help with this if you'd like. I've done some valuations based
on income, customer base etc.
Standard business stuff would put your company value at 1.2 to 2x annual
earnings. OR 3 to 5 x annual profit (probably not much of that if
you're growing well).
With a wisp, it gets more complicated because most wisps are growing
fast and are just starting to get into the profit mode. So the value of
the company won't even hit most guys for a couple more years. shrug
I've also seen WISPs get paid for the number of homes passed in addition
to the above.
The last valuation I did I took the number of customers possible on the
hardware installed, cut that down to more reasonable numbers (100 users
per ap), figured a moderate growth rate (max of 4 per day after 3 years)
and came up with an expected customer base in 36 months. That's the
point that I put a value on the company. I used 1.5x annual earnings.
At this point the company would have been HUGELY profitable though.
(started out with 1 install per day, ramped that up by 1 every 6 months
or so) *I* think I had a reasonable growth rate (market size was nearly
1,000,000 people much of which had NO broadband) and left room for
several competitors to gain market share.
On a partnership breakup it gets more difficult. No one probably has
any money (or they'd not be fighting so much in the first place). One
guy usually put up all the funding and the other one did all of the
work. There are hard feelings and often friendships on the line. In
those cases about all you can do is to take the income today and use
that for the value. Or one partner can agree to go silent and let the
other one carry on with business. Tough stuff either way.
Hope that helps. Feel free to call if you'd like to talk it over some
more.
Marlon
(509) 982-2181 Equipment sales
(408) 907-6910 (Vonage) Consulting services
42846865 (icq) And I run my own wisp!
64.146.146.12 (net meeting)
www.odessaoffice.com/wireless
www.odessaoffice.com/marlon/cam
----- Original Message ----- From: "Mark Nash" <[EMAIL PROTECTED]>
To: "WISPA General List" <wireless@wispa.org>
Sent: Thursday, April 27, 2006 7:31 AM
Subject: [WISPA] Business Value
I may be splitting with my partner in the coming months. We'll have to
come
up with a buy-out agreement. Has anyone got experience with valuating
WISP
businesses?
Mark Nash
Network Engineer
UnwiredOnline.Net
350 Holly Street
Junction City, OR 97448
http://www.uwol.net
541-998-5555
541-998-5599 fax
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