Don Buzzelli, president and chief executive officer of MessageLink Inc., Duluth, Ga., is looking to make a play in the paging industry’s current consolidation stage.
His plan is fairly simple-buy up a bunch of small but profitable paging carriers in lower-tier markets, unify them with a common billing and accounting system, and eventually sell the lot en masse to a larger carrier looking to add subscribers and expand coverage.
“Our ultimate goal is to grow the company through acquisitions and internal marketing to approximately 500,000 subscribers and over $50 million in revenues within three years,” he said. “I think we will be a prime acquisition target for someone looking for that in the future.”
Most small businesses dream of being bought out by a larger, richer competitor, but most are too small to attract attention.
“The major participants will not even look at a company until it has up to 400,000 or 500,000 subscribers,” Buzzelli said. Also, while larger paging carriers would like to expand their coverage into smaller-tier markets, few wish to negotiate the many deals necessary to gain presence in each, nor do they wish to convert each new company onto a new billing system.
Buzzelli’s proposed business plan negotiates the necessary acquisition deals, converts all companies onto a common billing and accounting system and presents a large bulk of subscribers at once.
Buzzelli-who has been in the paging industry for 30 years as a distribution representative, carrier owner, marketing executive and consultant-said eight companies have signed letters of intent to sell their business to MessageLink, totaling 30,000 subscribers with combined annual revenues of $21 million. He expects to have the first acquisition of this group completed by April 28.
Then, he said he expects to close at least one more every two weeks until all are complete. Once the first eight acquisitions are finished, Buzzelli said he hopes to continue with one new deal a month to end up with between 20 and 30 companies acquired by the end of the three-year acquisition stage.
He is looking for paging companies in second- or third-tier markets that boast an average revenue per unit of at least $9, resell one of the top five paging carrier’s airtime, use FLEX technology, and have positive cash flow, churn rates of between 2 percent and 5 percent and at least 8,000 subscribers with consistent growth.
“With all the properties, we’re flexible on these requirements, depending on the operation,” he said.
The purchase price will depend on a multiple of cash flow, recurring revenues and orderly liquidation value of the subscriber base, as well as cost per subscriber, he said. Before signing any deal, Buzzelli said Arthur Anderson will audit each company and BIA Consulting will evaluate them.
“We are really going to make sure these companies are as we expect them to be,” he said.
During the plan’s three-year course, Buzzelli said each acquired company will continue to market services under its respective brand.
“I don’t want to spend a large amount of money to establish a MessageLink brand,” he said. “The last thing I want to do is change the company that has been successful over the years.”
Instead, he said he will leave their strengths alone and focus on improving their weaknesses.
“We will consolidate the billing and the accounting package,” he said.
Also, he said the combined companies will be able to command the type of incentives enjoyed by companies of larger size, such as purchasing power for equipment and airtime. Also, Buzzelli said he intends to eliminate duplicative functions and establish open lines of communication between the entities so they may share operational and marketing ideas.
Buzzelli’s acquisition search is nationwide. He said he prefers to acquire companies operating in a common market, with a goal of commanding up to 25,000 subscribers in any given area.
MessageLink’s partner, venture capital firm CD Ventures, has contributed about $2.2 million in financing. Buzzelli said MessageLink also has secured a $15 million senior bank facility with another $15 million in reserves. Once the company meets certain milestones, he said another bank facility is ready with an initial $40 million limit that could grow to $100 million.
Buzzelli said the acquisitions will be paid for with cash and preferred notes convertible to stock in the resulting company. Should a larger paging carrier buy the company, those owning preferred notes would have their shares bought out. Should no company offer to buy the company, Buzzelli said it would instead go public and note holders would own preferred stock.
However, Buzzelli said he would like to see MessageLink sold off eventually.
“I’m as excited today about the paging industry as I’ve ever been.”
