The Hindu Business Line : Vanco acquisition at modest price

The acquisition of Vanco Group by Reliance Globalcom, a subsidiary of Reliance Communications’ (RCom), gives the company access to lucrative markets and a good roster of enterprise clients, at a relatively modest acquisition price.

The acquisition (100 per cent) would cost Reliance Globalcom $76.9 million (Rs 327 crore), free of debt.

This suggests that the company may not takeover the debt component of Vanco.

Vanco did carry net debt of about £35 million in its balance sheet as of July 31 2007. Vanco is a virtual network operator in the UK.

Virtual network operators do not own network infrastructure, but buy it from telecom operators and resell voice, data and video services.

For Reliance Globalcom, this acquisition holds several possible benefits.

Market access

One, it gives access to Western European and the US markets as Vanco derives 90 per cent of its revenues from the UK, the US, Germany and France. These regions offer superior margins.

Second, it helps expand the company’s Enterprise footprint, what with Vanco having 220 customers across 163 countries.

Third, with its own undersea global connectivity, the carriage cost of various network services may be optimised with higher utilisation.

With the acquisition of Yipes, a large metro Ethernet player in the US last year, RCom has already gained foothold with enterprise clients, who are large spenders on services such as VPN for enhanced connectivity.

Cloud over MTN buy?

However, the RCom stock declined sharply on Monday due to its reported discussions with MTN after rival Bharti had backed off.

With MTN’s market capitalisation hovering at about $35.8 billion, RCom, like Bharti may have to resort to substantial debt funding or equity dilution to fund this buyout.

RCom had $2.7 billion of cash and equivalents on its latest balance sheet.