Summary
1. The recent track record for private equity firms purchasing prominent telecom companies has been less than stellar – to say the least. 2. The lack of due diligence as well as the bad luck of poor timing have made investments in this sector by equity companies quite dicey 3. The Verizon Wireless assets appear to have their own potential pitfalls.
Analysis
Of course, investments by private equity firms in Hawaii Telcom and Telcordia were unmitigated disasters. With the purchase of MACH, one wonders whether there were due diligence issues here as well – with perhaps the presumption that the company would be able to make significant inroads into the US market. The Avaya acquisition seemed to be made by equity firms to keep it from going to Nortel – whether one or more manufacturers were indirectly endorsing this move, the possible payback could again depend on the timing of the sale. And at the particular time Verizon pulled the trigger, the return on the investment for Alltel was nominal.
The equity firms are probably thinking that a smaller Alltel kind of package is also likely to get purchased by a service provider relatively quickly -- and the hope would be a substantially bigger return on investment this time around. However, with all of the apparent competition involved, the final cost could rise up quite significantly. In the Alltel situation, an eventual purchase by Verizon Wireless was just about in the bag. In this case, there does not appear to be buyer that definitely needs to get these assets. And so, there may be a reluctance to pay too high a price for them.
