A veteran talked about how to get the deal, and also described the broker's greatest fear during a deal.

by Alex Goldman ISP-Planet Managing Editor [October 23, 2007]

Tom Millitzer, president of Cape Coral, Fla.-based ISP broker NCC focused his speech at ISPCON on teaching ISPs how to market their business to a prospective buyer.

He pointed out that when a company decides to acquire a business, it has many potential targets. An ISP needs to get noticed.

One problem many sellers have is a lack of focus in the business, Millitzer said. Many ISPs sell dialup, DSL, T-1s, wireless, hosting/colo, e-mail, IT services, and more. But the acquirer is looking for something specific, such as wireless or hosting.

Millitzer represents the seller. He said that towards the end of one recent deal, he found that the business was in rented data center space and the lease was up for renewal in 90 days. In order to put a positive spin on the situation, he told the buyer that this would allow them to negotiate whatever deal they wanted.

Basics
"It's a fundamental rule that the buyer is buying your business because they can run it better than you can," said Millitzer. Some sellers don't like to admit this. Generally, the buyer has better economies of scale and sometimes a more professional management team.

How do you measure how successful you are? Financial analysts have many measurement tools, but Millitzer said he prefers EBITDA. Millitzer pointed to Bill MacNamara (see Vendor Financing for the WISP Industry), and asked him what EBITDA means.

"It's how much money you're making," said MacNamara.

"It's cash," agreed Millitzer. "Cash is king."

For those interested in delving deeper, Millitzer pointed attendees to his blog on theWHIR. We found this entry particularly useful: Re-titled The Ultimate EBITDA.

For a rollup, constant acquisitions, Millitzer noted, allow you to avoid paying taxes as all profits are re-invested back into the business.

His greatest fear
The greatest fear of all brokers (not just ISP brokers but real estate brokers and anyone else doing a deal) is that one of the parties, buyer or seller, decides to try to get a better deal at the last minute. Millitzer called it "greed" but it can also be about pride.

There's a famous example that comes to mind: Facebook. From Wired's article, How Mark Zuckerberg Turned Facebook Into the Web's Hottest Platform:

In the days after Zuckerberg [Facebook's founder] agreed to sell, Yahoo announced it was projecting slower sales and earnings growth, and that the launch of its new advertising platform would be delayed. Its stock price plunged 22 percent overnight. Terry Semel, Yahoo's CEO at the time, reacted by cutting his offer from $1 billion to $800 million. Zuckerberg, who had been warned about Semel's reputation for last-minute renegotiations, walked away. Two months later, Semel reissued the original $1 billion bid, but by then Zuckerberg had convinced his board and executive team that Yahoo wasn't a serious partner and that Facebook would be worth more on its own. He rejected the offer and became famous as the cocky youngster who turned down $1 billion.

This sort of deal-breaking last minute re-negotiation does happen. Millitzer said that if you've been working for six months to get to a deal, renegotiating could delay the deal another six months, if not permanently.

"If I start screaming, 'do the deal!', I mean it," Millitzer said. "I've had people go bankrupt [after trying to renegotiate]."

Notes from the Q&A
In response to a question, Millitzer noted that buyers try to avoid buying the stock of another company because they want to avoid assuming the liabilities of the previous owner.

He noted that the value of dialup subscribers is declining, but that subscribers paying a higher monthly fee are worth more.

If all your contracts are annual, and your subscribers have just renewed, buyers will be looking at subscribers who will not generate revenue for a long time and will be reluctant.

—End