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BY Strive Masiyiwa
__A big idea, an excellent team.
A few months ago, Liquid Telecom, one of our businesses, bought a South African telecoms company called Neotel Communications, for about $450m. Quite a few of you who saw the news about the transaction wrote to me, asking me to share some insights into buying and selling businesses.
I’ve therefore decided to use this acquisition as a case study to share some tips on the subject of buying and selling businesses. First of all, some background to the Liquid/ Neotel transaction: Liquid Telecom is a company I set up from scratch in about 2000. It was one of the first businesses I launched when I left my homeland Zimbabwe, and began to live in South Africa.
Initially, our business operated from Mauritius and London. It was my first time to set up an office in a European country, when the idea of Africans setting up businesses in Europe or outside Africa was quite rare. I'm glad this has changed, as it should.
__Liquid was a small high tech company with a "big idea." That’s all you need sometimes. We also had an amazingly passionate team, who were highly skilled and confident.
Within a few short years, the company became highly respected in a new area of telecoms in which it was almost a pioneer. It was also a "B2B" company, meaning that it sold services to other telecoms players, and not direct to consumers.
Liquid initially focused on moving international voice traffic for telecoms operators in some 70 countries. We did this using satellite technology, and we developed earth station facilities in Europe and throughout Africa. We even had an earth station facility in Norway.
Even when you’re enjoying success in any business, you must always stay on the lookout for disruptive changes that could either threaten your business or create new opportunities. In the case of Liquid, the growth in telecoms voice traffic was slowing down, but we saw that movement of data traffic to support the Internet was going to be explosive. Most importantly, we saw it long before most of our peers. We quickly moved our focus into developing fibre optic networks.
After the Neotel acquisition is completed, we’ll have more than 50,000 km of fibre optic networks across southern, central, and eastern Africa. This is the largest such network on the African continent.
We were not the only ones to see this new landscape, but different players, new and old, saw things in different ways. Some companies built undersea cables, others became Internet Service Providers, and so on.
Our own business grew quickly, and through effective management and judicious use of our resources, it soon emerged as the key player in its sector of the industry.
Making the business bigger required a combination of setting up and building businesses from scratch, but we also made acquisitions in some markets. The Neotel transaction is just the latest in a long list of acquisitions that we’ve done to build the business. We’ve also bought businesses for Liquid in Kenya, Rwanda, South Africa, Tanzania, Uganda, Zambia, and Zimbabwe. Neotel was owned by Tata Communications, a subsidiary of the giant Indian global conglomerate, Tata.
In this series, I’ll share with you some of the principles and processes that we use in deciding when and why we buy businesses, and how to buy a business. There’s also the challenge of integrating and transforming a business that you buy.
Sometimes we also sell businesses, and we do this quite often: "Buying and selling businesses, is also business."
__Buying a business: six key questions.
A good entrepreneur must never be too sentimental towards a business. There’s a time to buy, a time to sell, and even a time to close a business. It's all business, and in a successful business career, you must have the capacity to do all three.
In the first part of this series, I introduced you to the subject of "buying or selling businesses." As an entrepreneur, you need to be aware that buying or selling a business is also part of business.
Let's look first at the subject of buying a business:
__You must always be very clear why you want to buy a business. Many people buy businesses, filled with emotions, yet with very little analytical work to justify their decision.
A friend of mine, with a great job, once came to me very excited that someone he knew was planning to sell his business, and he wanted to buy it. And as often happens in such situations, he wanted me to help him fund it.
Having listened to him quietly, I asked a simple question, "Why do you want to buy a business?"
"I have always wanted to get into business," he began.
"So, why have you taken this long?” I asked, adding, “After all these years, you could have already started something of your own; so why now?"
I wasn’t asking these questions just to be difficult. I wanted to see if he was an entrepreneur, or just someone hoping to make himself more wealthy.
After we had discussed for a while, I asked him: "Tell me what you’re going to do with this business, once you acquire it?"
Whether you’re buying a business for the first time, or you’re a giant multinational buying a business, these same questions always apply:
1. What is the motive behind your decision to buy a business?
2. What will you do with it, to grow and expand it, once you’ve acquired it?
3. Do you have the capacity to run and develop the business that you’re planning to buy?
4. What will you to pay for it, and how did you reach that price?
5. How are you going to pay for it?
6. What are the challenges and risks you will face that are outside your control?
When buying Neotel South Africa, we had to answer each of these questions, methodically and dispassionately, sometimes bringing in outside parties to test our answers to each question.
__These are principles you must write down carefully. Many books are also written on the subject. Believe me, I’ve read books and articles on acquisitions over the years, including those that failed spectacularly.
In a big company like Liquid, management must convince both the board and the investors. Then, of course, there are the banks and, in this case, there were lots and lots of banks.
Going back to the story of my friend:
I'm always skeptical about people who try to get into business by buying a business, unless they happen to be managers of the business they’re trying to buy. In most instances, when people opportunistically try to buy a business that’s on offer, it ends up badly. It either ends up struggling to keep its original glory, or they simply go out of business.
Most big businesses are not opportunistic buyers. They know exactly what they’re looking for, and they’ve usually been watching the business they propose to buy for quite a long time.
Every week we’re offered businesses to buy. I always, always, apply the six rules I’ve listed above. Once I can tick off the boxes on most (if not all) of those questions, in a methodical and dispassionate way, we can begin to look at it. Otherwise, I say thank you, and move on.
__A big idea, an excellent team.
A few months ago, Liquid Telecom, one of our businesses, bought a South African telecoms company called Neotel Communications, for about $450m. Quite a few of you who saw the news about the transaction wrote to me, asking me to share some insights into buying and selling businesses.
I’ve therefore decided to use this acquisition as a case study to share some tips on the subject of buying and selling businesses. First of all, some background to the Liquid/ Neotel transaction: Liquid Telecom is a company I set up from scratch in about 2000. It was one of the first businesses I launched when I left my homeland Zimbabwe, and began to live in South Africa.
Initially, our business operated from Mauritius and London. It was my first time to set up an office in a European country, when the idea of Africans setting up businesses in Europe or outside Africa was quite rare. I'm glad this has changed, as it should.
__Liquid was a small high tech company with a "big idea." That’s all you need sometimes. We also had an amazingly passionate team, who were highly skilled and confident.
Within a few short years, the company became highly respected in a new area of telecoms in which it was almost a pioneer. It was also a "B2B" company, meaning that it sold services to other telecoms players, and not direct to consumers.
Liquid initially focused on moving international voice traffic for telecoms operators in some 70 countries. We did this using satellite technology, and we developed earth station facilities in Europe and throughout Africa. We even had an earth station facility in Norway.
Even when you’re enjoying success in any business, you must always stay on the lookout for disruptive changes that could either threaten your business or create new opportunities. In the case of Liquid, the growth in telecoms voice traffic was slowing down, but we saw that movement of data traffic to support the Internet was going to be explosive. Most importantly, we saw it long before most of our peers. We quickly moved our focus into developing fibre optic networks.
After the Neotel acquisition is completed, we’ll have more than 50,000 km of fibre optic networks across southern, central, and eastern Africa. This is the largest such network on the African continent.
We were not the only ones to see this new landscape, but different players, new and old, saw things in different ways. Some companies built undersea cables, others became Internet Service Providers, and so on.
Our own business grew quickly, and through effective management and judicious use of our resources, it soon emerged as the key player in its sector of the industry.
Making the business bigger required a combination of setting up and building businesses from scratch, but we also made acquisitions in some markets. The Neotel transaction is just the latest in a long list of acquisitions that we’ve done to build the business. We’ve also bought businesses for Liquid in Kenya, Rwanda, South Africa, Tanzania, Uganda, Zambia, and Zimbabwe. Neotel was owned by Tata Communications, a subsidiary of the giant Indian global conglomerate, Tata.
In this series, I’ll share with you some of the principles and processes that we use in deciding when and why we buy businesses, and how to buy a business. There’s also the challenge of integrating and transforming a business that you buy.
Sometimes we also sell businesses, and we do this quite often: "Buying and selling businesses, is also business."
__Buying a business: six key questions.
A good entrepreneur must never be too sentimental towards a business. There’s a time to buy, a time to sell, and even a time to close a business. It's all business, and in a successful business career, you must have the capacity to do all three.
In the first part of this series, I introduced you to the subject of "buying or selling businesses." As an entrepreneur, you need to be aware that buying or selling a business is also part of business.
Let's look first at the subject of buying a business:
__You must always be very clear why you want to buy a business. Many people buy businesses, filled with emotions, yet with very little analytical work to justify their decision.
A friend of mine, with a great job, once came to me very excited that someone he knew was planning to sell his business, and he wanted to buy it. And as often happens in such situations, he wanted me to help him fund it.
Having listened to him quietly, I asked a simple question, "Why do you want to buy a business?"
"I have always wanted to get into business," he began.
"So, why have you taken this long?” I asked, adding, “After all these years, you could have already started something of your own; so why now?"
I wasn’t asking these questions just to be difficult. I wanted to see if he was an entrepreneur, or just someone hoping to make himself more wealthy.
After we had discussed for a while, I asked him: "Tell me what you’re going to do with this business, once you acquire it?"
Whether you’re buying a business for the first time, or you’re a giant multinational buying a business, these same questions always apply:
1. What is the motive behind your decision to buy a business?
2. What will you do with it, to grow and expand it, once you’ve acquired it?
3. Do you have the capacity to run and develop the business that you’re planning to buy?
4. What will you to pay for it, and how did you reach that price?
5. How are you going to pay for it?
6. What are the challenges and risks you will face that are outside your control?
When buying Neotel South Africa, we had to answer each of these questions, methodically and dispassionately, sometimes bringing in outside parties to test our answers to each question.
__These are principles you must write down carefully. Many books are also written on the subject. Believe me, I’ve read books and articles on acquisitions over the years, including those that failed spectacularly.
In a big company like Liquid, management must convince both the board and the investors. Then, of course, there are the banks and, in this case, there were lots and lots of banks.
Going back to the story of my friend:
I'm always skeptical about people who try to get into business by buying a business, unless they happen to be managers of the business they’re trying to buy. In most instances, when people opportunistically try to buy a business that’s on offer, it ends up badly. It either ends up struggling to keep its original glory, or they simply go out of business.
Most big businesses are not opportunistic buyers. They know exactly what they’re looking for, and they’ve usually been watching the business they propose to buy for quite a long time.
Every week we’re offered businesses to buy. I always, always, apply the six rules I’ve listed above. Once I can tick off the boxes on most (if not all) of those questions, in a methodical and dispassionate way, we can begin to look at it. Otherwise, I say thank you, and move on.
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