If you’re a CLEC looking for money from Wall Street, sit back and relax because it’s going to be a while. However, there are some ways around the bottleneck if your company knows what to do. That was the message from investment bankers at the “Financial and Investment Trends” panel on Wednesday.
Raising capital is perhaps the hardest undertaking right now, especially when considering that company valuations have dropped 10-30 percent since October 2008, said Ray Hernandez, managing director at JANCO Partners.
The next best option would be M&A but “the transactions have to be compelling,” said Roger Valdovinos, cofounder and director of Blue Beacon Capital LLC.
Yet, for Hernandez, “if you don't have to sell right now, don't, because valuations have come down significantly.”
Steve Soraparu, director of Waller Capital Partners, agreed.
So, if mergers aren’t a good strategy, a CLEC might be able to raise funds if it can afford the higher prices for debt and adhere to stricter covenant requirements.
“It’s expensive money and it’s expensive because they can charge these rates given the environment we’re in,” Hernandez said.
Some possible ways to skirt Wall Street, though, include vendor financing; selling majority control to finance growth; and pursuing broadband money in the new federal economic stimulus package, he added.
No matter what, investors are most interested in companies’ free cash flow, Soraparu said.
The next six to nine months will be critical in determining what’s next for the economy as a whole and, on a smaller scale, for telecom. Expect M&A volume to stay down and for any activity to take place among private companies, said Valdovinos, and for investors to scour EBITDA data like never before. Any company looking for money from investors must focus on applications and features – Wall Street doesn’t want to hear about technology.
“Focus on solving customer problems and managing churn,” Valdovinos advised. Above all, he added, don’t give up. Competitive telecom “is a space we all believe in still.”
The panel was moderated by Jessica Zufolo, senior policy director for the telecom arm of Medley Global Advisors.
