Tuesday, May 06, 2008

Vanco demise: Real beats virtual...

Great news for traditional telco as customers discover that sometimes, real beats virtual...

Vanco looks like going the way of the many margin traders - just like the city boys they too have been caught out by in the credit crunch.

Vanco is fundamentally a buy low, sell and live on margins, business. They're now finding that as the market turns against you, you had better hope and pray that your backers will cover the gaps in your cash-flow.

Having seen the April earnings announcements I was a bit surprised to read the news, especially to discover that analysts, whose praises just weeks ago drove the stock to an all time high, saying "we don't expect to see any value in the companies equity."

Could they have seen it coming? with hindsight probably: 3 things coming together have almost certainly caused a crunch in the companies cash flow, and collapse in the confidence of its backers and investors.
1) Tightening of economic climate causing slow payments from debtors
2) Channel stretching the elastic in the supply chain to breaking
3) Creditors unwilling to increase their risk and extend fresh terms

BackChannel work with enough Telco and ITC companies to know that the big customers are using their buying power to push out average payments, and with a growing and aggressive channel this will have been compounded by the number of links in the cashflow system.

This is always going to be an uncomfortable time in any board room especially bearing in mind and a few months ago Vanco CEO, Allen Timpany, hinted that their backers were not a very amenable bunch, "they want us to build a £200m business when we should be building a £2bn business". After they issued a profits warning in Aug 2007 we can only speculate how the relationship between founders and backers went, but it might have been opportune for someone should have reminded them of the Golden Rule: The man with the Gold makes the rules!

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