Monday, 26 May 2008

Alliance Globalcom ‘wins’ Vanco

Indian telco company Reliance Globalcom has been revealed as the new owner of Vanco. Reliance also bought UK eWave last month. Reliance is to pay $76.9m for "100% of the equity free of debt". Even that is only a third of the £123m said to be owing to the banks. So they will only get a fraction of their debt repaid and clearly there will be nothing left for the shareholders. Others interested in buying Vanco were reported as C&W, BT and T-Systems. Whether Reliance pay £0, £40m or £400m is less relevant than the buyer knowing the true extent of the liabilities and understanding what they are letting themselves in for. I should remind readers that Vanco is a company that managed to spirit away £60m cash in a couple of months and whose accounting practices have been questionable – to say the least.

'The acquisition of VANCO is in line with Reliance Globalcom's vision to create one of the Top 5 Global Datacommunications Enterprises in the world,' said Anil Dhirubhai Ambani, chairman of Reliance Communications.

See my 6th May 08 piece Vanco shares suspended, CEO resigns.

Personally I think this is a really sad outcome. I liked both the Vanco Virtual Network Operator (VNO) model and I knew Allen Timpany (who owned 48.5% of the now worthless stock) Vanco was worth £400m just a couple of years back at its heyday; putting Allen into the Times Rich List. I can also remember a meeting with BT Global Services at that time when Vanco was named as their #1 competitor in the network management marketplace. Now that is some achievement for a company a mere minor fraction of BT’s size.

Assuming the liabilities are known and capped, Reliance might be getting quite a bargain. Vanco has over 200 mostly bluechip customers including British Airways, Siemens, Ford, Avis, Pilkington and Virgin. They claim 34 of the Fortune Global 500 companies as customers. They include both multinational and large national customers; most of whom are on long term (3-5 year) contracts. It claims offices in 26 locations worldwide. Vanco has direct relationships with around 700 carriers and provide DSL access in 161 countries. It manages around 40,000 sites worldwide on behalf of its customers. Its network has 7000 PoPs and 15,000 direct internet access PoPs. They work closely with SITS companies like CSC (at Belron), IBM (at Lloyds TSB) and with channel partners such as ARINC in the air transport industry and carriers and communications companies including Verizon, Bell Canada, Bell South, Comcast, AOL and Qwest.
Vanco has revenues of nearly £200m (that’s excluding the many £bn of revenues from the telcomms services billed by others that Vanco ‘controls’). They claim ‘unbreakable’ contracts valued at c£400m (31st March 07)

I particularly liked Vanco because:

- From ‘nothing’ they have been able to ‘take on’ the majors like BT Global Services, AT&T, Orange Business Services, Verizon Business and T-Systems. Vanco is seen as a ‘threat’ to these companies even though it is a fraction of their size. Even in the Managed Network Services market Vanco has <25% the market share of its larger competitors.

- I like the fact that Vanco has concentrated on small to medium-sized deals. I see this as a USP.

- Vanco has a simple business model. Easy to understand.

- Vanco always seemed to me to have a pretty lean operation.

- Vanco has an excellent reputation for customer service and for reliability. This manifests itself in its high retention and low churn. Reputation should have a high value.

Reliance will need to act fast to ‘steady the ship’ and avoid mass defections of customers, partners and staff.

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