NEW YORK-The merger spree in the paging industry during the past few years currently is at a lull, but acquisition activity is not over by any means.
“Among the top 10 or even the top seven, there is more consolidation to come,” said Jeanine Oburchay, associate director of Bear, Stearns & Co. Inc., New York.
MobileMedia Corp. “would definitely become a target” for acquisition if it emerges from bankruptcy with the plan now before the court, she said. That proposal, if approved, would leave the paging carrier with about $150 million in debt and a debt ratio of less than twice cash flow, which is “significantly lower than anyone else.”
Cynthia M. Motz, vice president of Credit Suisse First Boston, New York, said she doesn’t believe any other paging carrier necessarily would want to acquire MobileMedia. Besides financial difficulties, she said there may be problems at the middle-management level of MobileMedia that other paging companies would be reluctant to inherit.
Brian G. Coleman, director of Toronto Dominion Securities USA Inc., New York, thinks MobileMedia could be an acquirer.
“Based on the numbers we’ve run, it would be levered at less than two times cash flow. That would give it quite a bit of acquisition capacity,” he said.
“I would say MobileMedia could be a consolidator, a vehicle to consolidate the industry.”
Arch Communications Group Inc. is another likely candidate for pairing, Oburchay said.
“It has a nice solid (customer) base and great margins. It needs a transaction that gets it less leveraged than it is now.”
Because Arch’s balance sheet needs work, Coleman said he doesn’t believe it will be an acquirer, at least for the time being.
“Although Arch claims it still is in talks with everyone, we believe that Arch is more likely to get taken over than it is to acquire any other major company at this point,” Motz said in a recent report entitled, “Where’s the Beep?”
“But we think there would be a real problem about the price to be paid and what should or could be done with all of the debt.”
Metrocall Inc., which recently acquired ProNet Inc., also is on the acquisition sidelines for now because it “has a bit of digesting to do,” Coleman said. That situation puts on hold for awhile the possibility of an Arch-Metrocall merger, which many securities analysts have said seemed, at least in the recent past, to make sense.
Mobile Telecommunications Technologies Inc., “could be a buyer, but its focus is on two-way (messaging). The biggest asset someone could bring to M-tel is distribution, but you’re looking at $1 billion.” Coleman said.
That’s a steep price to pay for distribution channels, especially when reseller agreements could achieve a similar goal without such a huge capital outlay, he added.
AT&T Wireless Services Inc. has announced it would like to sell its paging business, but who the likely buyer might be is unclear at the moment, securities analysts said.
AirTouch Paging, one of the few profitable paging carriers, seems fairly satisfied with its business as it is, according to Coleman and Motz. AirTouch seems less committed than other carriers to getting into two-way messaging, Coleman added.
“(Paging Network Inc.) might want to acquire another carrier (in order) to get additional subscribers and networks, but it isn’t likely to acquire one of its competitors in the top ten,” Motz said.
With the trend toward two-way messaging, Oburchay and Coleman said the larger question for the smaller, one-way carriers is whether another company would want them.
“No one necessarily needs to acquire them, so they won’t be part of a consolidation play and will become less competitive,” Oburchay said.
David Abraham, president of David Abraham & Co., a Westport, Conn., company specializing in mergers and acquisitions for small and medium-size telecommunications companies, disagreed strongly with that assessment.
“There is a solid business to be had in one-way paging, which has been fine and is staying the course. [personal communications services], which may get some market share, aren’t fully deployed. One-way (paging) offers ubiquity of service and small device size at a price hard to match, $7 to $8 a month.”
Acquisitions of privately held, one-way paging companies have been very quiet for the past few years because the value of publicly traded paging companies’ stock declined, in some cases by 75 percent from earlier peaks. That increased the difficulty for large paging carriers seeking to buy smaller ones because the purchases, “would be dilutive to earnings,” Abraham said.
The values of publicly traded companies also provide a benchmark for evaluating the worth of privately held firms.
“And private companies don’t want to sell at bargain basement prices. Why sell at four times cash flow when you can wait and get 6-7-8 times cash flow?”
Now that valuations on the public side of paging have started to rebound, Abraham said, “we are beginning to see signs of life … we’re starting to get some inquiries from paging companies.”
As for the regional Bell operating companies, Motz said those that still have paging operations, “are holding on to them so they can offer a bundled service offering.
“Obviously, to the extent that they could get a good enough price for their operations, they would probably be willing to sell them. However, we do not believe that the RBOC players are interested in gaining more size through making acquisitions in the paging arena.”
Cable television companies seeking to enhance their service offerings might be paging company acquisition candidates, said Jane Snorek, research director and portfolio manager for Oberweis Asset Management, Aurora, Ill.
“In the long run,” she added, “it would be cheaper and smarter to build a wireless digital phone network.”
