Business Week’s Steve Rosenbush filed a story today about the IT services industry. This includes a wide range of services, from colocation to outsourced services.
The enterprise sector of this industry is dominated by large consulting services firms, including units of EDS, IBM and CSC. It seems that private investors are interested in buying out some of these major publicly-held IT services companies soon. There are over 1000 firms that might be candidates for acquisition, according to Goldman Sachs analysts.
This is the kind of acquisition that the Carlyle Group made when they purchased Hawaiian Telcom from Verizon. Carlyle also owns One Wilshire, which I discussed on February 22.
Sometimes the private owners will flip the company for a profit after a few years. In other cases, the company is split into pieces and sold at a profit. In both cases, layoffs, reorganization, and change are part of the agenda.
It remains to be seen if HawTel can generate enough revenue to satisfy its new owners. The Business Week article mentions that private investors tend to use a 20% internal rate of return (IRR) as one benchmark of performance, based upon projections of future earnings. A 2006 quarterly loss figure of US$44 million, compared to the US$1.6 billion purchase price, didn’t help matters.
HawTel’s eroding landline business needs help. I discussed on November 16 how HawTel has had to switch consultants in its systems integration project. Last May, it became apparent that HawTel was sending bills out late, which led to HawTel’s changing plans.
In December 2005, Stewart Yerton of the Star-Bulletin wrote about the company’s “Save the Line” campaign to keep current its landline customers.
The company’s recent delay of its IPTV rollout to 2008 doesn’t help matters. IPTV would let HawTel compete against Time Warner Cable for pay television subscribers, by sending television signals through HawTel’s landline network.
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