Cable and Wireless Must Prove Worth of Acquisitions in 2002

• By The WHIR, January 25, 2002

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Cable and Wireless Must Prove Worth of Acquisitions in 2002Adam Eisner, theWHIR.com

January 25, 2002 - 2001 was an extremely busy year for British telecommunications firm Cable and Wireless. The company made three major acquisitions, vaulting itself in to the exclusive group of companies leading the world's Web hosting market.

In August, the company spent $340 million to purchase California-based Web hosting firm Digital Island. Following that, it purchased selected assets of now-defunct ISP PSINet. And in December, C&W spent $850 million to buy most of the assets of hosting firm Exodus Communications, which filed for bankruptcy protection earlier in the year.

Of course, a great deal of capital was required to make these acquisitions. And in 2002, it will be up to C&W to prove to investors that it spent its well-publicized cash reserve on worthwhile acquisitions. The company was under heavy pressure last year to spend some of its surplus, and to spend it wisely.

Fortunately for C&W, recent events in the hosting industry seem to indicate that successful mergers and acquisitions are not only possible, but are becoming the norm for companies that wish to stay atop the industry. Hostpro and Interland, for example, which merged last March, seem to be well on their way to becoming seamlessly integrated, and more profitable as a result. In fact, Interland seems to have since embarked on a mission to increase their market share of the SME hosting sector even further, using its newfound power to purchase the shared hosting assets of Interliant in October and the small business hosting assets of AT&T earlier this week. And on Thursday, a merger between Affinity, Inc. and CyberGate, which owns hosting firm ValueWeb, created yet another hosting behemoth.

As an established European brand that is not well-known in North America, it will be interesting to see how Cable & Wireless decides to approach Europe's Web hosting market this year. Very little seems to have been made of the company's new place in the European hosting industry since the acquisitions despite the fact that the company is headquartered in Britain. What has also gone unmentioned is the fact that if C&W's situation in the U.K. is any indication, the company acquired a fair number of big-spending European clients through its acquisition of Exodus. This means that C&W's acquisition of a major North American hosting company might give it further leverage in Europe.

In the United Kingdom, Exodus lost few customers due to its financial tribulations and resulting sale to Cable & Wireless. In fact, UK Managing Director Gavin Kilfoil recently told news portal vnunet.com that the company was still in good condition.

"We still have about 260 customers out of 280," he said. "Of the 20 we lost, 16 have gone out of business." According to vnunet, Kilfoil personally phoned or visited every client to explain the company's situation, and many clients hung on. What's more, 68 per cent of those customers are now enterprise clients, which have bigger needs and bigger budgets than regular hosting customers. Kilfoil added that only a year earlier that same percentage was dot-com clients, which can often be a more volatile revenue source.

Kilfoil also said C&W might be interested in retaining the Exodus name in North America, as C&W is not very well-known. Therefore, continuing with brand names such as Exodus and Digital Island would be much easier than starting anew with the C&W brand.

Therefore, with the right planning, there is no reason C&W cannot leverage its acquisitions to succeed. And given the magnitude of C&W's spending in 2002 and its resulting market share, investors should expect no less.

    

Tags:  mergers and acquisitions  Europe  shared hosting  SSL  telecommunications  Appro  British Telecom  Cable and Wireless  Digital Island  EDS  Interliant  Portal  PSINet  ValueWeb  Vnunet.com 

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