Tom, I do not mind having my posts clipped for content when replying but
I do mind it when you do it mid-sentence and change what I said. My
sentence read, "Nobody in unlicensed is going to get 6X unless they have
a network doing 10s of millions of dollars a year in revenues or a
smaller network with an ARPU of say $500 per sub. Then maybe I could see
6X."
Tom DeReggi wrote:
Nobody in unlicensed is going to get 6X
Thats where you are wrong.
Actually I do not think I am wrong. If you can find a single case to
back up that I am out of line in my thinking then please share it before
saying I am wrong. I do not think 6X has ever been paid unless there
were some other outrageous value propositions involved in the deal. I do
not think I am wrong.
However, the value of a higher Multiple is relevent to the amount of
customers one has and what stage of development the company is in.
For example, If I bulit a network today, the very first day after it
was turned live, there would be Zero customers and zero revenue, just
monthly loss for the reoccuring fees that the company obligated
themselves to. Would you then say the company was worthless because it
had zero revenue?
From a resell standpoint, at that moment in time, your company could
well be worth less than what you paid to build it. It is just like
driving a car off the lot. It depreciates thousands of dollars the first
few feet off the lot.
Selling on multiple of revenue would be stupid. If your neighbor
thought you were a threat and wanted what you built, you would sell
for the "cost to build" + ROI for creating the "potential". Its very
possible that a 6X evaluation 6 months after starting would be no
where near the same profit margin in a sale as getting 1X after the
second year.
Let's get this straight. I was not insinuating that the 6X had to
include the assets of the company. There is always a settling of debt
and equity in a deal like this that has no part in the valuation of the
multiples of revenues. It looks like this (multiple of revenues + cash +
assets - debt = selling price) At least this is how I have done it when
working with others on both sides of the table.
I got a 6X offer a number of years back and turned it down, because
I like the business, I wasn't done yet, and it was way to early in the
development of my company relating to revenue. If you bought a race
car, would you sell it for revenue, before it ran its first race? Or
even First year at the track? No. People buy the race car, for the
hope it will allow them to win races in the future. Buying Alvarion is
like buying a supercharged race car, that you want to guarantee can
hold up on the track year after year without blowing engines. Where
the trick comes in is having the revenue and the infrastructure in top
form, racing to be the first to the finish line, to have as much
revenue as poissible in the shortest period as can be, so
infrastructure still has the highest value, so at evaluation day, you
can maximize a ROI.
I'm not saying Alvarion or Mikrotik is better for a WISP, I'm just
saying, each of them has clear benefits over the other, and Alvarion's
clearly is ruggedness. And that can't hurt an evaluation.
> (zero tax deduction for equipment
depreciation).
Great Point. That also reminds me that owning the CPE outright may not
always be an advantage in an evaluation either. The buyer gets hit
with heavy Property tax every year, that adds up to a significant
amount.
Property tax? Explain please. I do not know what you are talking about
here. I have always thought of property taxes as having to do with real
estate. Are you talking about having to pay taxes on asset values after
depreciation?
We are concidering owning the gear not more than the first year, and
then switching to term contract after the first year, or giving it to
them right from the start under a cancellable term contract, and (then
when they renew the contract -idea 1), we give them the CPE, and
secure the term contract with the gear. Because you can gift anything
under $600 with out 1099, and CPE cost is less than $600, You could by
pass property tax, sales tax, Possibly still get the full deduction of
the gear (section 179), and still have the security of having term
contract with subs to help bank financing and evaluations. This is a
mute point for people that lease, but for people that pay cash, this
may be a better tax way to do it.
Tom, sorry to act like your 6th grade English teacher but the term is
"moot point" not "mute point". Remember Tom, a friend will tell you if
you have food on your face at dinner. You had some on your face.
Disclaimer, I'm not an accountant, and still checking the viability of
the idea. The end user contract can be cancellable any time without
penalty, they just have to give you the gear back as condition of
breaking the term. The only disadavantage I saw of this, is that on
the balance sheet it would show less assets owned by the comapny, but
it could still be reflected on the books as a dollar value of
"security" as collateral for revenue.
Thanks to the accelerated depreciation schedules and $150K per year of
direct expensing of CAPEX items each year you can usually limit any tax
liability related to owning the CPE gear these days.
Scriv
Tom DeReggi
RapidDSL & Wireless, Inc
IntAirNet- Fixed Wireless Broadband
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