John Linton
Maybe some ill winds actually don't do anyone any good?
It seems that the 'global financial crisis' (which Australia was fully protected from according to Krudd) is actually beginning to affect some aspects of Australian business based on what I have noticed from my in boxes and telephone message banks. It seems that there is an increased level of M and A activity from the main 'brokers' in the technology parts of the market. The number of people contacting Exetel, either directly or through a 'broker', about our interest in acquiring small/very small ISP/Telephone provider type companies has noticeably increased although many of the 'brokers' are people who have contacted us before and I've advised them, quite unequivocally I would have thought, that Exetel would never be a buyer of 'customer bases' or of companies. It hasn't deterred at least three of them for sending me new 'opportunities' this week and then constantly leaving messages on my mobile telephone asking me to "call to discuss".
In the four days of this week so far I've received 11 such 'opportunities' - a new record by a very long way.
Of more surprise has been receiving two calls yesterday afternoon from two new 'brokers' I've never been approached by before on behalf of "seriously interested and major" companies who would be interested in acquiring all or part of Exetel and, even more strangely, Exetel's operations in Sri Lanka (about which they seemed to know an awful lot more than I would have thought was possible from the information we have made public). I was intrigued enough to 'spin out' these conversations in the hope of learning something 'to my advantage' but apart from receiving a summary of how tough current market and financial conditions are - and getting tougher and more dangerous (demonstrating that the persons giving these 'summaries' were not very bright and certainly knew almost nothing/nothing about what was going on let alone what may be causing it or where it may go) I got virtually nothing from my investment of over an hour of my time.
If I was as clever as I think I am in my more generous spirited moments I might have concluded that there are now three companies operating in the Australian marketplace that are pretty anxious about their slowing/slowed/stopped customer growth and what that means for their projections on ROIs for some hefty equipment investments they may have made. However I wasn't in a generous spirited mood yesterday afternoon so I didn't reach that conclusion.
So after investing more than 30 minutes of my time with the first 'enquirer' I said that if he wished to progress any discussion he would need to exactly 'spell out' what he/his "serious and major" company was actually proposing, in what time frame and how they would establish a financial offer. He said that wouldn't be possible "at this initial stage" and he was only seeking an understanding of Exetel's interest in entering into detailed discussions. So I advised him that we had no time for such activities, which he would fully understand as he had just finished telling me how very difficult it was in this industry right now, and therefore we could not spend any further time talking with him. He was not pleased but I subsequently managed to persuade him to end the telephone call. Hopefully he then contacted the next 'target on his list' and wasted even more of their time than he did of mine.
The second 'broker' representing 'an admired and highly successful major player' approached his task slightly differently 'seeking my assistance' in determining whether Exetel would be honoured by a formal approach from his client concerning opportunities for mutually beneficial synergies. It didn't get phrased quite like that - it took a good 4 - 5 minutes for the man to get out his opening 'spiel' (during which time I contributed not a single word). The actual phone conversation took 40 minutes during which my total contributions may have accounted for, at a maximum, 5 minutes. I only let it go on that long because of his prolixity and in the hope that somewhere in his outpourings I would learn something - which I didn't. So I eventually got enough 'interruption' time to say we weren't interested and hung up.
Given that there aren't many ISPs who would be big enough to think of buying even a small company like Exetel (and discounting Telstra, Optus, AAPT and iPrimus) you get to less than half a dozen. It seems that there are three of them (counting the previous approach from the first broker some weeks ago) looking for 'acquisitions'. If that's a correct assessment then it does seem that times are perhaps becoming tougher than it seems to me. Or maybe it just means that three "major and serious" (I can't think of any of them who could be described as "admired" except by themselves) believe the market is 'collapsing' for small ISPs and they can pick up some 'bargains' as companies like Exetel would be desperate to sell out for a pittance.
If there is a recession in Australia then times will obviously become very difficult and the generalization about recessions is that they reduce the number of competitors in any market with only the very big or the very strong actually surviving and eventually when the recession ends being even bigger and stronger (with less competitors) than when the recession began. Exetel certainly isn't very big, in fact it is small - so that factor is worrying. However I think Exetel is very, very strong in terms of its extremely low cost of operation and the 'mental toughness' of its management and the very great skills of its key personnel. I, personally, on Exetel's behalf have little fear of an imminent recession in Australia and the inevitable consequences of what recessions bring to small businesses. (and please God, don't punish me for that arrogance/hubris).
I think it is a time, recession or not, to act even more conservatively than in the past and to ensure that every last cent is wisely spent - which means spending as little as possible. I'm glad we have no borrowings and we have always paid cash for our equipment and never leased anything other than our North Sydney office space and now the office space in Colombo. We certainly won't be hiring more personnel in Australia for the time being and we will continue to gradually implement our successful work from home processes to ensure we don't need any more office space in Australia.
I will be interested to see what further 'consolidation' takes place in the Australian communications business over the coming year and will do everything possible to try and ensure that Exetel doesn't get 'consolidated'.