Blue Beacon Capital's Roger Valdovinos says ISPs are perfectly positioned to take advantage of the growth in IP communications.

by Jeff Goldman [August 9, 2006]

Roger Valdovinos founded Blue Beacon Capital in 2004 to focus on mergers and acquisitions as well as restructuring and capital raising in the telecom, media and technology sectors. For public companies, Blue Beacon also works with corporate officers and boards of directors to help devise strategies for enhancing shareholder value.

Valdovinos says Blue Beacon generally focuses on ISPs that are generating at least $10 million dollars of revenue—though he says the firm will consider working with smaller companies in newer markets. "Most wireless ISPs are not that big yet, and so we would consider working with a WISP that is on the smaller side," he says.

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Wireless, he says, is an exciting place to be. "We think wireless technology really gives a communication provider disruptive economics on the last mile, and enables an operator to not be reliant on the ILEC or RBOC for that last-mile connectivity," Valdovinos says. "So it's got very meaningful ramifications for time to market, from a scaling perspective, and ultimately from a gross margin perspective."

In seeking opportunities, Blue Beacon contacts the wireless and wireline ISPs that it sees as market leaders, though Valdovinos says most of the firm's work comes through industry relationships that have been developed over time. "Usually, they've got executives that we know or have worked with, or they have investors or board members that we know," he says.

The value added food chain
When representing an ISP for sale, Blue Beacon starts by gaining a full understanding of the ISP's business model. "We also get involved in doing valuation analysis, and trying to build a case to extract as much value as we can for our client—really understanding not just top-line revenue, but what the sources of the revenue are and what the opportunity is to offer other value added services," Valdovinos says.

Valdovinos says he likes ISPs that offer a wide range of services. "We view the ISP model as attractive because, ultimately, ISPs control broadband—and we believe that broadband is the Trojan Horse to offering a full bundle of communication solutions," he says.

For most service providers, that can open up a huge number of opportunities. "ISPs are in a great position to up-sell voice services and other value added applications over that broadband pipe," Valdovinos says. "The key, however, is being able to offer a high quality broadband connection, and so I think ISPs are very well positioned, given today's technology and commercial acceptance of VoIP, to really move up the value added food chain of communications."

Those kinds of value added services, Valdovinos notes, help increase an ISP's customer stickiness as well as its average revenue per user (ARPU). "A pure play broadband company will not be able to extract a premium valuation relative to a company that is using the broadband connection as the vehicle to offer other applications on top of that, such as voice," he says.

Buyers and sellers
Blue Beacon's fees are based on a retainer plus a percentage of the transaction value. "We will not take on an engagement unless we're confident that we can close it, so we're really success fee driven," Valdovinos says. "However, we feel it's imperative that our clients have skin in the game by way of a retainer, because we do commit a substantial amount of time to all of our assignments."

After assessing the ISP's business plan and preparing a comprehensive confidential information memorandum, Valdovinos says, Blue Beacon approaches potential buyers. "We've got a fairly expansive universe of buyers that we know," he says. "Really, the ultimate goal is to create an auction-type process where we have multiple bidders for our client."

The firm never represents both a buyer and a seller on the same deal, though it does also represent buyers in other transactions. On the buy side, Blue Beacon works with ISPs that either have their own access to capital, or for whom the firm feels confident it can find acquisition financing.

And looking forward, Valdovinos says, Blue Beacon's aims for the future are straightforward. "We want to be the leading investment bank within telecom, media and technology on a national basis over the next three to five years," he says.

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