Brampton Capital leverages its experience in the tech sector to help ISPs with mergers and acquisitions as well as financing.

by Jeff Goldman [August 16, 2006]

Bill Stewart founded Brampton Capital in 2000 after many years of working with investment banks in the technology sector and with commercial banks in project finance. "We saw a need for lending in the space, and that led into getting involved in a lot of advisory services in the ISP space—and in the hosting space as well," Stewart says.

For mergers and acquisitions, Brampton Capital handles transactions ranging from $5 million to $100 million. "We do take companies that are smaller if we have a geographic or strategic interest in that revenue—if, for example, in New York, there was already a company that had an infrastructure there, and they could basically acquire revenue in that geography for very little added cost," Stewart says.

Brampton Capital 7930 West Kenton Circle Suite 230 Huntersville NC 28078 Voice: (646) 418-2520 mailto: advisor@Bramptoncapital.com

When helping an ISP find a buyer, Stewart says one key criteria is to seek a buyer that has done transactions in the space before, in order to streamline the process and minimize any necessary handholding. The second criteria, he says, is to find buyers that are obviously in a strong enough financial position to close the transaction.

Selling an ISP
The transaction process begins with the preparation of an information memorandum that presents the ISP in the best possible light. "We look at the composition of their revenues on an annual scale, we look at the trends of sales, trends of margins—which are very important to present to any competent buyer—and then we go through our relationships to see who would be the best fit for this type of revenue," Stewart says.

What makes an ISP easier to sell, and at a higher multiple? "If a company has good trends of sales, good trends of margins, and a relationship between the two, that's what's going to demand multiples," Stewart says. "But so many dialup companies have been losing market share for so many years—and if you've got a downward trend of sales, it's very easy for a buyer to make an argument for a low multiple, certainly below 1x annual, to acquire that revenue. However, if a firm has great trends, maybe 10 to 15 percent growth or more, over the last 24, 30, or especially 36 months, then I can argue for a significant multiple."

Lately, Stewart says, he's been seeing a lot of buyers looking for specific types of revenue, including colocation and managed services. He says another thing that makes an ISP attractive is the promise that the buyer will be able to sell new services to the ISP's established customer base, regardless of how many services they're already buying. "My experience in this space has been that multiple types of revenue are really not an issue, because they complement each other so well—hosting, access, colocation, data storage, etc.," he says.

A lot of opportunity
Brampton Capital's fees are based on a percentage of the transaction. Stewart says they rarely include a project fee or retainer. "We don't use project fees unless we're having to work on getting a company turned around," he says. "Most of our work is success fee based. That speaks to the fact that we don't really need to live off project fees, because we know we've had a lot of success in closing transactions."

The firm's industry experience, Stewart says, is a key differentiator. "Should we need help in any one particular area, we have consultants that have owned ISPs, that have owned hosting companies, that have owned managed services firms and security firms, that we can tap into to help us with a transaction at any time—so we feel we've got a leg up on a lot of the smaller brokers that may not have the financing side as well as the technology side," he says.

And Stewart says that range of experience and connections can also be useful for ISPs seeking financing. "We have a great conduit into lending for small business, whether they're using the money for debt restructuring, acquisitions, or other types of revenue," he says. "Since the dot-bomb, there have been very reluctant lenders into the telecom space, and we've been able to find some great partners in the prime plus 1 or prime plus 2 over seven to ten year amortization schedules."

Despite the struggles that the ISP space has faced over the past few years, Stewart is optimistic about the future of the industry. "The increased opportunity in the technology space opens up margins and multiples, and, coincidentally, opportunities for ISPs and hosting companies to sell added services onto the same customer, which is everything for pretty much any industry," he says. "So I think there's a lot of opportunity right now."

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