ORLANDO, Fla.-The public stock markets may be a bit shaky for now, but “there never has been more private capital available,” David Golden, co-director of investment banking at Hambrecht & Quist, San Francisco, told PCS ’98 attendees at the conference late last month.
Venture capital doesn’t come cheap. It has, in fact, been likened to loan sharking because late stage/mezzanine financiers seek to double their money in 12 to 18 months, he said.
However, even a year delay in a company’s initial public stock offering means a private equity investor’s real return sinks to 30 percent.
However, even at venture capital rates in a private equity marketplace with plenty of cash on hand, such financing won’t be available to any but visionary companies poised to become market leaders, Golden cautioned.
Companies seeking to make themselves attractive ultimately to the public capital markets need to identify and address their weaknesses, he said.
Personal communications services “are looking to Silicon Valley, to Israel and to other high-tech hotbeds,” Golden said.
“When organic growth slows, it’s cheaper and faster to buy a new product than to develop one.”
There also is “no shame” in selling a company, “especially if you can command a premium and [the sale] is key to realizing long-term shareholder value,” Golden said.
Gaining access to another company’s distribution channels, brand name and/or manufacturing capacity are good offensive strategic reasons for selling a company, he explained.
Corporate sales undertaken for defensive reasons, like reducing operating costs, “are the most difficult to do and the most disruptive to employees,” Golden said.
In the paging sector, the keys to a happier reception from public capital markets are “meeting the numbers, (improved) distribution and free cash flow from one-way (service),” said William L. Collins III, president and chief executive officer of Metrocall Inc. and chairman of the Personal Communications Industry Association.
“A number of companies are at free cash flow,” he noted.
As important as the criteria Collins enumerated is the growth potential for paging, said Ed Baker Jr., president and chief executive officer of Arch Communications Group Inc.
“What Wall Street is really attracted to about the paging sector is … the 9- (percent) to 10-percent growth rate from higher [revenue per unit] services that should translate into double-digit revenue growth,” Baker said.”The valuation multiples have bottomed out.”
To John Beletic, president and chief executive officer of PageMart Wireless Inc., the dearth of available public capital works to the advantage of major paging players.
“The good news is there’s not much access to capital so there won’t be 100 paging companies in [narrowband PCS],” he said. “We’re among the few with access to capital.
“The structure of the industry we’re entering is better than the one we’re leaving behind.”
