Jay Sachetti joined Jeff O’Brien, partner at Husch Blackwell and Dyanne Ross-Hanson, president of Exit Planning Strategies talked about the market for mergers and acquisitions, exit planning opportunities for companies that don’t end up for sale and how companies can maximize their eventual sale price during an early October panel at the first Upsize on Tap event at Summit Brewing Co. in St. Paul.
When the state Legislature passed a law requiring employers to provide paid leave and safe time for employees, Justin Bieganek started hearing differing details from friends, colleagues and peers.
Over the past couple of years, Twin Cities-based Internet service providers have been merging at speeds faster than a broadband connection. But any deal that involves a commingling of technology can cause complications — especially for customers.
Jeffrey Schissler, CEO of Esultants Web Services, a Minneapolis Web hosting company, had his share a year and a half ago when his ISP was acquired. He and a colleague had to unplug and move their company’s 13 servers to a different data center — a common chore for customers whose ISP changes hands.
What delayed matters, however, was a lack of preparedness on the new ISP’s side. Though it had promised the availability of a computer monitor for them to reprogram the servers, none could be found upon their early-evening arrival, says Schissler. That meant they had to wait for an ISP staffer to come and retrieve one.
“I thought in that situation they maybe should have had somebody waiting for us,” he says. “I thought that could have been better played.”
His company’s downtime amounted to an hour and a half. Not bad, he says, but it was enough to upset several of his own Web hosting customers, whose Web sites didn’t work during the transition. Though all 500 were forewarned of the impending shutdown, one in particular was miffed at the prospect his Halloween-costume e-commerce site lost business during its peak season.
Despite the early inconveniences, Schissler has stuck with his new ISP. Others have not: About 45 percent of the acquired ISP’s customers left the new ISP within 15 months, according to public legal records.
Small-business owners who experience an ownership change with their ISP should ask a number of questions to ensure their lives — and their companies — aren’t needlessly complicated.
For starters, customers should be notified of any merger or acquisition the day it’s made public, if not days or weeks earlier, say ISP owners. In most cases ISPs communicate via e-mail (not surprisingly), so customers should check their message boxes. Some companies receive so much e-mail that they quickly delete important alerts, and then cry foul when they find out about an acquisition after the fact, says Theodore Pound, CEO of Minneapolis-based The Best ISP.
Schissler was contacted about his ISP’s acquisition about a month beforehand, giving him plenty of time to prep his employees and own customers for the transition.
In the case of Digital North, a small Minneapolis-based Web hosting company that bought ISP juggernaut VISI.com in December 2005, CEO Mike Sowada had employees speed-dialing customers and deploying e-mails mere hours after he inked the deal.
“It was a long day, but you got to do that stuff,” says Sowada. He has also gone on more than 60 meetings with existing customers to quell fears and answer questions related to the merger. “I want them to see here’s why they can be comfortable with this — not only comfortable about it, but why they should be excited about it.”
Once the acquisition is underway, customers should ask whether they’ll need to move their equipment, say ISP owners. Most often, the answer will be yes. Middle-of-the-night moves, when Web traffic is light or nonexistent, are the best way to ensure business won’t be disrupted.
Companies can set up temporary servers to keep everything online while primary equipment is transported, but that can be cost-prohibitive, especially for a small business. Schissler says he considered such an option, but with 2005 revenue between $600,000 and $700,000, he didn’t have the funds to justify it. Also, “that would have been more work, we thought.”
Customer support may change radically following a merger or acquisition. Small ISPs that don’t have a 24-hour help hotline nevertheless might have top-tier managers or the owners themselves answering calls. Customers who call The Best ISP, for example, will likely reach Pound.
Small ISPs also work through informal channels, in sometimes unorthodox ways, to serve customers. Pound often puts a couple “tech friends” on call to help out in emergencies when he’s out of town, he says.
But with new ownership may come a new set of standards, especially if it’s a large ISP taking over, says Pound.
That may prove to be better or worse for the customer, depending on how things are set up. You may get a faster answer for simple problems, for example, because a large ISP is likely to have many staff people answering help calls.
Large ISPs also have more turnover among their front lines, so they’re not likely to grant too much security clearance and system access to these employees, he says.
“You’re not going to find someone who really knows what’s going on” when the company’s paying them “eight to nine bucks an hour,” he says. “But they’re good enough to handle 90 percent of the calls.” Customers with complex problems might need to wait a couple hours to a day for a callback from someone qualified to help, he says.
In some cases, culture clashes between merging companies can lead to a brain drain, which can permeate all parts of an ISP, says Dave Perrill, president of BHI Advanced Internet Solutions, an ISP in Eden Prairie. “All of a sudden you’re having all kinds of problems that you didn’t have with the old provider.”
Cost is a prickly topic for customers, now that Internet service is becoming more of a commodity. Aware that some might jump ship if new prices are raised too high — or at all — after a merger, ISPs often grandfather newly acquired customers into the old ISP’s price plan, says Perrill. Subscribers who come on board after a merger, on the other hand, might be subject to higher rates.
“We didn’t want to ruffle any feathers and mix everything up,” says Sowada of his own decision to keep existing customers on the same pricing structure. New customers might pay a little bit more, but will get greater value, he says.
Other forces within an ISP can affect a customer’s bottom line besides price, so it’s important for customers to ask the new owners about their vision for their company. Evidence of their long-term plans can often be found in how they handle the merger, say ISP owners.
Too many times ISPs join together and “hack and slash,” says Sowada. When employees are getting laid off, customers must scrutinize the motives and motivation behind it, he says. Some ISPs cut staff and consolidate overhead to reduce costs and boost profits, without much concern about how those changes will affect customer service, he says.
Look at the company’s growth plans, he says. Are owners putting money into the newly formed ISP, or taking money out of it? In the case of his own merger, Sowada is pumping dollars into capital improvements, adding room to its St. Paul-based data center. “That makes the end business a lot more comfortable knowing we’re investing in the business and not just trying to milk it.”
Sowada didn’t cut any staff during the merger, although it was a mutual decision for the ex-VISI.com general manager to leave, he says. He’s also eyeing other ISP acquisitions, he says.
Although it’s human nature to react negatively and defensively to change, customers shouldn’t just assume the worst if their ISP changes hands, says Jeff Hahn, CEO of Minneapolis-based Internet Exposure, a Web development firm that also provides Internet service.
Sometimes a fresh start is good for all parties involved, especially if the customer’s previous service wasn’t that great. “It’s a really interesting sales opportunity, really. And an opportunity to make amends.”
[contact] Jeff Hahn, Internet Exposure: 612.676.1946; jh***@*******re.com; www.iexposure.com. Dave Perrill, BHI Advanced Internet Solutions: 952.279.2200; da***@*hi.com; www.bhi.com. Theodore Pound, The Best ISP: 612.460.4700; in**@********sp.com; www.thebestisp.com. Jeffrey Schissler, Esultants Web Services: 612.623.8054;**@*******ts.com“> in**@*******ts.com. Mike Sowada, Digital North/VISI: 612.395.9000; ms*****@**si.com.
