Communications Crossroads - Fall 2008 - (Page 12)

“I felt that for us to grow, we’d have to take another 12-to-15 years if we were to double our size. I think that’s what a lot of companies will have to do. They’re going to have to look at the marketplace that’s out there and determine how they want to play. I don’t think staying the same is an option.” In January of this year, Hutch Tel was acquired by New Ulm Telephone. Clay says the idea of merging was not a revelation; he started the ball rolling about four years ago. As one of the then-ofﬁcers on the USTelecom board, he was dialed-in to what was happening in the industry. Feeling that Hutchinson either had to double its size or ﬁnd another solution, Clay hired an investment banking ﬁrm to come in and analyze, to tell the board what was going on out there. “I had a good handle on it,” he says, “but I thought that they should hear it from someone other than the Chairman/President/CEO running the company. They did an analysis of the industry in general, nothing to do with Hutchinson.” That was back in 2005. After a follow-up analysis in 2006 and a detailed look at Hutchinson’s ﬁnancials to see how they compared to other companies out there, Clay put the question to the board. At year’s end, they decided the climate and marketplace was right. From beginning to end, Hutchinson’s quest for a buyer took a year; about eight months to a merger agreement, the balance of the year to close. Clay said ﬁnding the right buyer was important. “After 111 years, our company had a very good reputation and we wanted to make sure our reputation continued with the communities we serve and the service quality we provide.” He was also very interested in what would happen to the company’s employees and turned several deals down ﬂat that would not incorporate his desire that the entire Hutchinson team be retained a minimum of one year following the close. “Obviously, the ﬁnancial side of it was very important—as to how much “Small is Beautiful” You might think Patrick L. Eudy, CEO of the Charlotte, NC-based American Broadband, would feel differently about such things, since his company’s raison d’être is acquisitions, but his sentiments run right along the same lines as Clay’s. Too often, according to the American Broadband philosophy, large telephone companies forget that the success of the local exchange carrier is directly tied to the success and economic vitality of the community it serves. “I hate to be corny,” he admits, “but I’ve come to believe that small is beautiful.” This from a leader whose outﬁt’s recent acquisitions include Colorado’s Rye and South Park telephone operations along with Nebraska’s Dalton and Elsie telephone companies, among others. “Our basic premise,” he says, “is that over the long term—say 20, 30, 40 years—rural America will grow at a rate in excess of historical averages and that growth will in part be enabled by broadband. In small rural towns you have an opportunity for commerce through broadband that you wouldn’t otherwise have.” And the companies he’s got his eye on are those “with real solid ties to the established communities that they serve, that have a legacy of service and commitment to network development in these areas, which is challenging on many levels.” Challenges, says Eudy, that they will have mostly faced down already. He outlines what makes a particular company attractive: “We want [those] that have the entire Sell yourself: What makes an attractive buy? Some factors vary, but keeping the following ducks in order will never hurt your chances: NETWORK “Companies with higher quality networks command higher prices,” says Francis X. Gallagher, Jr. of Stifel Nicolaus. “Your network should be as state-of-theart as possible.” FINANCIAL RECORDS “It’s critical,” says Gallagher, “to have as granular ﬁnancial reports as you can possibly have because buyers want to do extensive due diligence. If the reporting isn’t there, the buyers will penalize the seller.” EMPLOYEE BENEFITS “We do see buyers that are troubled about things like ‘deﬁned beneﬁt pension plans,’ which can frequently represent contingent liabilities,” Gallagher admits. The truth isn’t pretty; promising your work force health care and lifetime pensions translates to ballooning costs for buyers. “Make sure your employee beneﬁt arrangements are state-of-the-art as well.” infrastructure in place. We want to keep it in place, and we can provide help—which is one of the advantages of having a bigger company behind you; you have resources for things like IT and billing versus having to outsource. There are deﬁnitely things 12 COMMUNICATIONS CROSSROADS www.ustelecom.org © Alexandersamoilov | Dreamstime.com our shareholders would be receiving for their investment,” he says, “but we just kept narrowing it down to somebody who was going to be good for our industry, good for our community, good for our customers, good for our employees.” http://www.ustelecom.org

Table of Contents Feed for the Digital Edition of Communications Crossroads - Fall 2008

Communications Crossroads - Fall 2008 Up Front Contents TeleBites The Urge to Merge The 700 MHZ Auction: Results and Speculation Industry Calendar Advertisers DotCom Index to Advertisers People Straight Talk

Communications Crossroads - Fall 2008

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