Altnet Restructuring
Hosting and Internet company - dramatic turnaround and successful exit
The Challenge
A large US telecommunications company with revenues of approximately $800 million
found itself in an extremely difficult financial position, with mounting losses.
Whilst the company held the No.2 position in the hosting market and was also a
Tier 1 Internet backbone provider, it was being held back by slow progress in
integrating two newly acquired businesses into the two existing operations, leading
to duplication of senior management, networks and systems. There was a large number
of underutilised data-centres and office buildings. Customers were leaving the
business resulting in declining revenues driven by customer churn at 5% per month.
What We Achieved
A major turnaround of the business was delivered with the company in a position for
EBITDA break-even after 12 months and cash-flow break-even after 18 months. The key
steps taken included:-
- Exit from unprofitable products and geographic locations with revenues stabilised at more than $500 million per annum.
- Data-centres were closed and customers migrated with utilisation increasing from 30% to 50%. The restructured hosting business was recognised as an industry leader by Gartner.
- Internet traffic was converged onto a single, owned-fibre network with a low-cost upgrade path. The new network was awarded "Top IP Network" status in U.S. with no packet-loss during the one-month survey period.
- Churn was reduced to 1.5% per month under strong sales management.
- Headcount was reduced from 4,200 to 1,600 staff.
Restructuring & Disposal
A number of benefits were delivered:-
- A single senior management team was quickly established with clearly defined roles and responsibilities. Each senior manager was held accountable for integrating his own department and for delivering his part of the restructuring plan.
- A single brand was established and promoted, driven by a clearly articulated customer value proposition.
- Employee Terms and Conditions were standardised and plans implemented for key staff retention.
- A common and straightforward bonus scheme was introduced with pay-outs as each quarterly cash-flow target was reached.
- A Separation Agreement was negotiated with the parent company.
- The business was presented to a range of potential new owners and attracted significant interest, in particular, from leading U.S. technology focused Private Equity companies.
- Using Chapter 11 to strip out the redundant property portfolio, the business was sold successfully for $155 million.
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