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Performance & Planning

Bridging a Vertical Knowledge Gap for a Multi-Billion Dollar Acquisition

The Challenge

With a multi-billion dollar acquisition of a major Latin American telecom provider on the table, a major U.S. private equity firm faced one key challenge. Without specific vertical experience in telecom, how could it establish the potential future value of a multi-play telecom provider?

The firm needed a partner with a strong telecom background to conduct due diligence on the opportunity prior to moving forward with the acquisition.

The partner had to deliver vertical experience in the telecom space plus functional experience across Marketing Strategy, Market Intelligence, Revenue Planning, and Financial Analysis. And it had to apply that experience using a proven process for evaluating and developing comprehensive opportunity assessments.

To realize the full potential of the opportunity, the firm entrusted its acquisition due diligence to CMG Partners.

Think

Leaning on decades of experience with major telecom providers, including Sprint Nextel, Nextel International, Comcast, and Virgin Media, CMG’s team of seasoned marketing practitioners went to work.

The team began by compartmentalizing the due diligence effort, with a particular focus on understanding the target’s underlying business drivers. Discrete components of the discovery phase included:

  • Core strengths and weakness assessment of the target’s diverse product set including wireless, data, voice, and video services
  • Market health and competitive landscape assessment to establish fair share benchmarking and opportunity growth forecasts per product line
  • Construction of a detailed valuation model to assess and validate the client’s assumptions regarding key financial drivers
  • Development of a detailed assessment of underlying drivers of revenue and unit growth across lines of business
  • Evaluation of current pricing approaches at the line of business level to identify gaps and potential opportunities to drive incremental revenue and unit growth

Do

Armed with insights revealed during the discovery phase, CMG developed a series of bottoms-up market, customer, and financial analyses across product sets – wireless, data, voice, and video services.

With special attention given to product-by-product acquisition, churn, and ARPU, these analyses enabled the team to make specific recommendations around the following:

  • Quick-win opportunities to drive new revenue and improve near-term operating performance.
  • Medium- and long-term profit growth opportunities, including the dimensionalization of product-level contribution to the company’s overall value growth.
  • Capital and infrastructure investments necessary to realize those opportunities and achieve market parity or market dominance positions for each product.
  • Budget planning for key functions, including marketing, engineering, sales, and customer care.

This information enabled CMG to develop a data-backed price recommendation for the acquisition.

Move

CMG’s due diligence exposed several flaws in the acquisition target’s self-valuation. These included:

  • Market growth and penetration rate estimates were unrealistic relative to historical figures and economic projections.
  • Churn performance estimates assumed material improvements in out years relative to recent history and likely impacts driven by the composition of the existing base.
  • ARPU growth estimates assumed acquisition mix shifts that were misaligned with near-term actuals and available opportunities given the competitive environment.
  • Projections failed to account for the downstream effect of the economic reality of increased video carriage & content costs; the likelihood the business could be maintained at higher prices in the face of competitive substitutes (OTT, etc).

Armed with CMG’s counter-valuation, the private equity firm placed itself in a strong negotiating position. When the target refused a lower price backed by CMG’s analysis, the firm passed on the deal.

Potential Realized

At times, realizing one’s potential has as much to do with the opportunities that not pursued as much as those that are. To make that decision with confidence, though, Lead Marketers require a detailed fact base, powerful & detailed analysis, and insights that allow the knowledge to be harnessed.

CMG’s team of seasoned marketing practitioners applied specific telecom industry experience and a proven process for due diligence to develop an informed view of the likely go-forward value of this acquisition target.

When the seller balked at the deal’s valuation, CMG’s client said no to the deal – and saved itself an eight-figure ROI shortfall in the process.