Advantage Cellular has emerged as the frontrunner in the acquisition of Hugh Symons Communications – Carphone Warehouse’s airtime distribution business.
Mobile reported last week how Dextra had dropped out of the bidding after exploring a potential deal before Christmas, leaving the field open to Advantage and Timico.
Advantage officially launched in September 2007, led by CEO and chairman, Simon Earle, together with an experienced hand in mobile distribution, group MD John McFarnon. The venture is backed by Polish billionaire, Roman Karkosik. The company has the ‘ExtremeMobile’ MVNO already in its stable as well as a b2b subsidiary.
Advantage ruled out any acquisition back at its launch in September on the grounds that none were suitably equipped, but Advantage is known to be keen on making a mark in distribution and has struggled to do it organically. A change of plan appears to have been triggered by the availability on the market of one of the most respected airtime distribution business. And one where there wouldn’t be any cannibilisation of its existing business.
Investing in airtime distribution right now is regarded as a risky move by some observers, given what appears to be a permanent drift away from small independent business, as the networks and big multiple chains grow their market share.
But it is the business market where Advantage sees its future. And Hugh Symons is considered to be the ideal vehicle for its growth.
Carphone bought Hugh Symons for £10m in December 2005 with the plan of offering its superior commercial terms through Hugh Symons and dominating the dealer market.
The plan ran into trouble as operators saw the risk of rising customer acquisition costs and empowering Carphone.
Here are six reasons why an acquisition of Hugh Symons would be a smart move for Advantage, despite the current uncertainty in the distribution sector.
1. They have deep pockets. Karkosik appears to be the archetypal sugar daddy, harbouring big ambitions and to see his goal realised quickly. Carphone bought Hugh Symons for £10m - £5m up front, and £5m through an earn-out. Senior figures at Carphone have said the company has already recouped its investment, and with the independent dealer market struggling, Carphone would be comfortable for a much smaller price tag than the £10m it paid – small beer to Karkosik.
2. Distribution stitches together Advantage’s existing operation. Taking on Hugh Symons would immediately strengthen Advantage’s credentials in the business market. The combination of an airtime distribution operation and Advantage’s credentials in the b2b market make for a potentially powerful force. Hugh Symons has solid trading terms and relationships with all the networks except for Vodafone (which Advantage has). Competitors rate Hugh Symons’ back office systems, placing any new venture well for serving the b2b market. Hugh Symons would also be able to provide more and better channels for the Extreme MVNO.
3. Vodafone. Because of the existing relationship between Advantage and Vodafone, the operator may feel inclined to give Hugh Symons a distribution license back. When it terminated Hugh Symons, it seemed Vodafone’s problem was not with Hugh Symons, but its parent company. This would immediately give Hugh Symons greater clout in its own right in the airtime distribution market.
4. Scale and integration. Advantage could leverage Hugh Symons trading terms to secure better commissions without causing the discomfort for operators when Carphone did the same thing. This time it would be for the much coveted business customers, and it’s a much smaller scale. McFarnon’s background in handset distribution would give Hugh Symons a strong handset and accessories dimension to its operation, making the company able to say ‘one-stop-shop’ and be taken seriously. Buying Hugh Symons would also take out a major player in the market.
5. Instant dealer base. Trying to build a dealer base is a painstaking and tricky affair (just ask Brightstar). Advantage would have one of the biggest and most valuable dealer bases in the market with a potential acquisition.
6. It’s not far away. Geography may seem a peripheral factor, but losing key staff, and the energy required when working together would have been (or still might be) a problem if Dextra were to buy Hugh Symons. Advantage’s Didcot operations hub is well under two hours drive from Hugh Symons Towers in Dorset. For Dextra, however, it’s over four hours.