No game of chance

Corporate acquisition is a competitive play between two stakeholders, writes Fleur Doidge

Stay strong: Btesh stresses the importance of partners trusting their own knowledge

Chess director Richard Btesh has much experience on the acquisition trail. Telecommunications VAR Chess recently notched up its 28th and 29th buyouts, following a lengthy trail of acquisitions leading back to 2004.

Btesh, whose background is as a corporate financier, was at the helm of Chess’ plan, and you might say he has delivered. Chess has bought out 14 companies in less than two years, and its pace has not slowed.

The recent acquisitions were 300 and 500 business customers, from rivals Sunstone and Puma Telecom, respectively. The bulk are fixed-line subscribers.

Btesh said at the time that Chess is flexible about its acquisition strategy, attracting businesses needing to free up capital but with no desire to resign from the market. But Chess prefers to buy out completely ­ and plans to average one acquisition a month for the rest of 2008.

Up to 10 reseller customers’ businesses are likely to be involved in takeovers or failures every year, and that number will grow in an economic downturn, Btesh said.

“We are losing 3,600 customers a year,” Btesh said. Potentially, thousands of business telecommunications customers are about to disappear as a result of convergence and consolidation.

Many companies may wish to follow Chess’ moves. But how does one go about acquiring other companies, especially in a time of economic uncertainty when more distressed firms are apt to be seeking bailouts or buyers?

Btesh said certain questions need to be asked, and from both ends of the equation. “How do you buy or sell a business?”, “Why might you want to buy?”, “Selling is not simply the opposite of buying.”

Distressed companies may or may not be a bargain. It is entirely possible that such companies have many problems hidden under the surface, around staffing and solutions, for example.

Btesh is adamant that deeper or structural problems may not be fixed through acquisition.

So Btesh recommends caution, above all, for partners seduced by the possibility of growth by acquisition in tough times.
He also notes that prospective deals need to be looked at carefully from all angles ­ and that a lawyer’s or other professional’s view is only part of the equation.

Partners should trust their own knowledge of their businesses and industry and not be dazzled by the qualifications of professionals such as lawyers or financiers.

Such professionals are often hired as advisers in a deal, but that does not mean you should look to them for such advice in all parts of the deal. Often, you will know best about the business itself ­ lawyers are usually not business people.

All advisers also have a vested interest in certain results and situations. Do not get checkmated by your own adviser, said Btesh.

“Hire professionals for their technical knowledge, not their business knowledge.”

Whether the acquisition is small ­ say, with a market capitalisation of up to £20m, as most of Chess’ acquisitions have had ­ or large, the same checks need to be applied and the same questions asked, advised Btesh.

The type of business doing the acquiring really does not matter much either, he said.
“Chess is a telecommunications reseller, doing fixed-line services for BT, wireless and so on. But the more I understand about what Chess does, the less value I am to them.”

He conceded that the word merger is a bit of a misnomer. In the real world, normally one company controls the other even if technically they acquire pieces of each other, at least in some ways.

And one must be properly funded to play the game. Chess has used private equity successfully, but there are various avenues.

Btesh chaired a 10-strong discussion group on industry consolidation at CRN’s Reseller Leadership Forum in Hampshire.

Tim Roberts, managing director of Keytools, said acquisitive companies also have to be careful who they speak to about
prospective purchases.

Rivals have been known to approach the potential acquirer with a deal, but with their own aims, to learn about your business. You have to watch what you are doing, as they will steal everything,” said Roberts.

Btesh also mentioned the importance of ensuring that staff in bought-out companies quickly identify with their new bosses.

Team-building needs to start right away following an acquisition, if the merged strengths of both parties are to survive.