Barclays Corporate is on the hunt for investment opportunities in the telecoms sector as the market continues to consolidate.
The bank already has a track record in investing in telecoms companies. This year it signed two deals with buy and build companies Daisy Group and Chess Telecom. The deals saw the bank invest £40m in Daisy Group’s acquisition war chest in February and provide £21m of funding for Chess Telecom in April, fuelling its plans to buy around 12 companies this year.
Now Barclays Corporate is close to signing off yet another telecoms investment deal and is on look out for more.
Andrew Skinner, relationship director in Barclays Corporate technology, media and telecoms team, told Mobile that as the telecoms sector continues to consolidate, it is providing a steady stream of likely candidates looking for investment, either to fuel acquisition strategies or to boost companies’ working capital.
The team targets companies with turnovers above £5m, with most clients tending to have turnovers of £20m and above. They hail from a variety of backgrounds. ‘Some are listed, some are privately owned and some are owned by private equity investors,’ Skinner said.
Barclays Corporate has a tried and tested formula for identifying the right investment opportunity.
Skinner said: ‘The prerequisite has to be a management team we can back, that has a track record in the industry and a track record of making successful acquisitions,’ he explained.
He pointed to Daisy Group as an example of an ideal investment candidate.
‘Daisy has evolved its strategy, scaling up its lines and calls business to get better carrier deals. Now they are looking to move up the customer food chain and are increasing the tools in their tool bag and that diversity is good.’
The reliability of a company’s revenue streams is also key, Skinner added.
‘Term contracts or a predictable revenue stream are quite desirable and make it a lot easier for a senior debt lender. It makes the margin for bad news minimal.’
He added: ‘What is important is a repeatable occurring revenue stream – it does not need to be contractual – but if it is across a portfolio of contracts that gives you a good diversity,’ he explained.
Skinner said Barclays Corporate rarely considers standalone mobile dealers, being wary of the power that network operators have over them.
He said: ‘If you resell mobile contracts for the big four operators it is always a tough existence and although people do it very well in a small or niche way they are always beholden to the network operators.
‘We have never gone into that market seeking just mobile dealers because there are a small number of operators with all the power and your sales success is down to what they want to shift. At the end of the day the operator has too much power over them.’
Chess Telecom was a different proposition, having the spread, stability and experience Barclays Corporate was looking for. The bank’s telecoms team had courted it for a number of years, Skinner revealed.
‘This was a proper business that had been owned and run by the same guy for many years, it was profitable, ambitious and had already made a number of acquisitions in the past, so providing the facilities to help them do what they do made sense,’ he said.
Barclays Corporate tends to take a hands-off approach to the management of the companies they invest in. Skinner says this gives the bank an advantage over private equity investors.
‘A private equity investor would want to manage the business and generally, as management usually has an equity stake in the business, it can also dilute the management’s equity share.’
Barclays Corporate takes a different perspective. Skinner said: ‘Our investment is to lend them money. We want the management team to manage the business. We have already bought into their management strategy. From then on there may be a frequent narrative between us but it is important to us that the management manages the business.’