In a press release earlier this year, GLOBALINX reported that they were actively seeking additional acquisitions in the IP sector.
Specifically they wanted to purchase, "rivals that target SMBs with services including hosted PBX, SIP trunking, UC and even cloud communication".
Since TA's entire audience does little else than buy and sell in that exact marketplace, we invited Craig Jerabeck to speak with us on the phone about their acquisition vision so that we might be able to enroll TA's 3,800 members to help GLOBALINX find and buy a good opportunity.
In the interview recorded in January we learned a bit about their shopping list:
GLOBALINX 2012 Shopping Dream Sheet:
- Switchless reseller
- East of the Mississippi
- Has an agent channel
- Different customer market than TMC agents
- $25m to $100m revenue per year or more
- Hosted VoIP & SIP OK if profitable
- Interested in companies that look like Access Point, AireSpring, Telesphere, Touchtone, WCS, or similar
- No CLECs
- No need to buy technology
This list above is not all inclusive and is just what I concluded after listening to the interview once more.
Listen to or read the entire interview yourself by scrolling below and then draw your own conclusions.
To learn how GLOBALINX's M&A visions fit into the larger industry M&A visions be sure and view the 2012 TA M&A Report and Preparation Checklist.
Listen to or Download the Interview Audio Podcast Recording
Click the audio player below to listen to the interview with your computer speakers now or click the link below to download the MP3 recording
Read or Download the Interview Transcript
Scroll down to read the interview now or the following link to download the preinted interview transcript.
2012 TA M&A Report Update:
What GLOBALINX Wants to Buy This Year
Telecom Association Executive Director Dan Baldwin interviewed GLOBALINX CEO Craig Jerabeck about their reported interest in securing an acquisition or two in 2012. Following is the interview published for the benefit of TA’s 3,800 members.
The following interview was recorded in January 2012.
Dan Baldwin: Hello. This is Dan Baldwin. Today we are speaking with Craig Jerabeck, the president and CEO of GLOBALINX, a nationwide CLEC and carrier services reseller that has recently purchased TMC out of Santa Barbara, one of TA's first vendor member from back all the way in 1997.
Craig, thanks for joining us today.
Craig Jerabeck: Thanks for having me Dan. I appreciate it
DB: The reason for our conversation today is GLOBALINX is reporting that they are still in the acquisition mode, and TA's members want to learn more.
Question #1. How big and stable is GLOBALINX relative to the other competitors in the marketplace that claim to be in the acquisition mode, like BCN, Endeavor, AboveNet and MegaPath, and what size companies are you looking to acquire?
CJ: Well, we are probably most comparable in size to a BCN. MegaPath, AboveNet and Endeavor are larger organizations than we are, generally in the hundreds of millions of dollars in revenues, so their acquisition strategy might be a bit different than ours.
GLOBALINX is a very financially stable company. We've grown our revenues over the past 5 years at a compound annual growth rate of nearly 200%. At this point, we've grown to a critical mass whereby we can serve as a good platform for future acquisitions, so if we bring in somebody else we have a tremendous base of talent and reach now in the marketplace.
We have over 150 employees in our GLOBALINX business unit. We're EBITDA positive and have been for some time. We've got a tremendous balance sheet at this point, so we are in a very good cash position. Very little debt on our books. We have interest left over from the TMC acquisition.
We have a very supportive financial sponsor in the Trillium Group here in Rochester that is willing to invest further if we find good synergistic deals n the marketplace.
2:06 DB: You said that the group was the Trillium?
CJ: Trillium. They are an investment group in Rochester. They actually work for the New York State Employee Pension Fund, and we have been fortunate to be partners with them for a number of years now.
DB: Question #2. Telecom agents and channel sales partners hate when their vendors are acquired because they are always asked to sign a new agreement. My understanding is that GLOBALINX is one of the more agent-friendly acquirers in the marketplace. Can you please give us a brief history of your past acquisitions? How is the integration of TMC going?
CJ: TMC is the 2nd acquisition we have done in the last few years. We acquired a wholesale provider a few years back named Kancharla. One of the reasons we acquired Kancharla is we wanted to get in the wholesale base, and we kept all the client relationships we had and all the wholesale partners in that acquisition.
Likewise with TMC, one of the reasons we like TMC is that they had an established and loyal SMB-focused agent channel. We like selling through channel. We don't have direct sales people on our payroll, so the agent channel made sense. TMC gave us a very nice partner group, and we closed that deal because the agent channel was quite important to us.
We didn't ask the agents to enter into an agreement. We simply put an addendum on saying we would honor the current agreement and asked them to agree to the transition, which everybody did.
We honored the existing compensation structure and made sure we paid the channel according to what they did, because thankfully the agents are the life flow of the company, and we want to continue to be known as an agent-friendly organization.
DB: Other acquisitions that you're looking for, are you looking specifically for companies with an agent channel already? Or are you really just looking for customers?
4:08 CJ: Actually we prefer to get additional channel. We've looked at a number of different opportunities over the course of 2011, and a couple of them had direct to market strategies, and that really doesn't fit the way we do business. We kind of shy away from folks that are just customer only opportunities.
We would love to pull off an East Coast acquisition, something certainly East of the Mississippi with an existing agent channel that is TMC-like so we can continue to grow the channel, yet not be buying the same agent distribution channel we have today. As long as they're focused during the SMB and enterprise space would like to move up market that would fit well.
But, again, an agent-oriented channel with customer base is really what we're looking for.
DB: Question #3. Another Telecom company, BCN, reports being in the acquisition mode and is looking for TA members to feed them acquisition leads by stating that they will pay referral fees for successful acquisitions. Does GLOBALINX have any experience with referral fees for bringing acquisitions to the table?
CJ: No, we don't. That's not our mode of operation. We're pretty focused and serious about going to acquisition, and as an important part of our strategy we actually engaged a banking entity, Blue Beacon Capital out of Princeton, New Jersey, to assist us in identifying, negotiating and completing acquisitions.
I'm concerned with the idea of referrals in that people are not going to necessarily focus on what it is we need, whereas with the banker we are very specific about what our needs are and our size ranges, and we want to be very proactive and methodical in our approach. So to me hiring a banker that specializes in the Telecom industry was the best way for us to go.
DB: Question #4. Can you speculate on what a good purchase in this space looks like? We mentioned TMC, you purchased them a couple years back, and I believe they are about 20 million per revenue per year, and that's the size company that you're looking for?
6:20 CJ: TMC was a little north of 20. Actually a good purchase for us, as long as we're getting customer base, established channel, complementary products and services, we are looking for somebody who is EBITDA positive and/or can clearly demonstrate that they will be EBITDA positive in a short period of time as a general rule.
With respect to transaction size, we actually would like to look at deals that are larger than a TMC deal, and we're willing to look at deals that are substantially larger that some might consider to be transformational.
We're really anxious to grow our business, and as long as the transactions are fair to both parties, and we can get a return on investment in a reasonable time period, and it adds to our growth and is synergistic with existing distribution, I think those are the things we are really focused on.
DB: It sounds like an obvious purchase would have been PAETEC if you're going really big.
CJ: That's a little too big. I don't think we will go that far in the market, Dan.
DB: But they're right there in Rochester with you guys?
CJ: Yes, they are. They're close by. So is EarthLink. EarthLink is a few miles away as well.
DB: Question #5. Maybe you can help us understand acquisitions in general. We saw other recent publicized purchases, MegaPath buying Speakeasy, and more recently IP5280 in the Broadsoft hosted space. Did those make sense? And how about West/ InterCall buying Smoothstone, or Towerstream buying Color Broadband? Did these all make sense in the whole acquisitions stream that you're seeing?
8:15 CJ: I'll do my best to answer this. I'm probably not the expert that you need, but I'll give you my perspective. MegaPath and Speakeasy does seem to make strategic sense. If we look at that transaction, a facility-based broadband provider and Covad merged with one of their channel partners which was MegaPath, and after that deal got done, they then merged with Speakeasy which was another large direct channel partner.
So effectively, what happens is Covad merged through large channel partners into their platform which is in my mind a good move. They took their infrastructure and went and bought channel, and I'm a channel guy so that to me makes sense. Now they have a large established retail business which complements their wholesale access business. I'm sure there are some pretty compelling synergies in that deal.
With respect to IP5280, I'm not quite as clear on that. I thought Speakeasy had already had a BroadSoft platform and a large customer base, so to me they weren't looking for technology, maybe just additional customer base to layer on top of what they already had.
DB: And InterCall/West buying Smoothstone, does that make sense to you?
CJ: That deal seems pretty rich to me. I was surprised at the multiple that was paid. I'm happy to see it as an industry guy, but it seemed like a pretty good number. Now, Smoothstone has done a great job deploying their solutions in the marketplace, but those were like vast-type multiples that they got on that deal. It seems to me that West is going to have to wait a long time to get their return investment.
DB: And more recently in the fixed wireless space, we saw Towerstream buying Color Broadband fixed wireless, a VoIP provider in LA.
10:12 CJ: The only concern I have there is we are a VoIP provider obviously for a number of years, and the wireless technologies in VoIP have not..we have not had great success with it, so hopefully they are having better success with it. We've tried partnering with other providers such as Clear to make our products work on wireless, and it just hasn't been what we had hoped for.
DB: Question #6. There seem to be many hosted VoIP firms with customer bases that they are kind of running out of VC cash. Are you looking to buy some of these retail hosted VoIP companies? And if so, do you have a preference for BroadSoft, MetaSwitch, or Asterisk-based shops?
CJ: Well, I have the flip answer which is if they start making money I'd be interested. But, most of what we are seeing is that while we think it makes sense to do acquisitions in the hosted VoIP space, we've already got a great platform to bring in customer bases and channel.
We are a Broadsoft shop. We spent significant resources both operationally and financially to deploy our network. It is Broadsoft-based. We've invested significantly into our OSS, BSS and customer provisioning systems over the last 5 years. We've been working hard to make sure we have best in class service.
Our network today is redundant, scalable, and I would have to say carrier class, so we aren't looking to buy technology. In fact, we have over 60,000 deployed VoIP seats today which makes us one of the larger tier 2 hosted VoIP companies. We're hoping to acquire VoIP customer bases, but the valuations have to make logical sense.
12:09 If we can't get a return in a reasonable time period, we probably won't pursue some of these deals and we’re looking at EBITDA multiples versus revenue multiples which is where it seems that some of the hosted VoIP guys are looking.
DB So you specifically would be looking for BroadSoft customer bases then?
CJ: We would certainly prefer a BroadSoft customer base, yes.
DB: Question #7. I gave you a whole laundry list here of I would think obvious acquisition targets, companies that seem to be doing fairly well in the agent world anyway, and seem to be small enough to be purchased. Do you have any comments, or can you give any guidance to people looking to buy any of these? Or any of these companies looking to be acquired?
CJ: These guys fit into a bunch of different categories. Access Point, the first one I see here on the list looks a lot like TMC to me. It would be a good fit for us. Switchless resellers is something certainly we're looking for. TMC worked very well for us. They have an established channel, as does Access Point, so that to me is intriguing.
I look at AireSpring, they’re a competitor of ours. AireSpring is a good firm, doing a great job, a nice fit for us as well.
Some of these guys, they're not as familiar to me, but I look at Telesphere, a great company, good management. Hosted VoIP, it would be very complementary to a company like ours, and certainly their hosted VoIP product line and it is very solid.
I'm trying to see some of these other guys. There are a bunch on here. Broadview, I'm not sure size-wise how big Broadview is.
So you have some great companies on here. SimpleSignal hosted VoIP provider.
TNCI, interestingly we will have to see what happens with TNCI I guess. I certainly would be interested in doing something with TNCI from my perspective.
Lightyear, probably not something that would be in our bailiwick.
14:24 TouchTone, another good company that we would probably certainly want to have some strategic talks with.
WCS as well. It looks like a TMC to us.
So, we're looking at switchless resale, hosted VoIP, not really interested in a CLEC, and UNEP from a B2B focus, probably not a bad place for us to be looking. So hopefully I've address the broad range of areas that these guys are in.
You have some good customer companies on this list. We know many of them through industry associations and so forth. I really can’t speak to size and so forth on them, but some of them clearly would have interest to GLOBALINX.
DB: Just to kind of wrap up, do you see GLOBALINX adding by 20%, 50%, doubling in size through acquisitions this year?
CJ: The $64,000 question is, can we get the right deal on the table, and how long will it take to get it closed?
We're actively looking. We have engaged Blue Beacon Capital to do an active search for us. We've looked at a number of deals in 2011. I personally would like to get something done in the first half of this year, and then look to do another transaction in early 2013. If I had my druthers, I would do 2 more transactions in the next 12 months.
DB: This is Dan Baldwin. We've been speaking with Craig Jerabeck, the president and CEO of GLOBALINX, a nationwide CLEC and carrier services reseller that is in the marketplace. Craig, did we forget to talk about anything today?
CJ: No, Dan. I think that was a pretty good list, and I certainly appreciate you guys being a great advocate for the channel, and for taking the time to speak with me today.
DB Thanks. We look forward to following up with you in the future after your next successful acquisition.