Some insights on MCLD...
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McLeodUSA: ACQUIRING MINDS
Telecom Business, Jul 1, 2001
<<Next to Allegiance, McLeodUSA is probably the only other CLEC that receives consistently strong grades from analysts. Also like Allegiance, the Iowa-based company uses low-key heartland modesty like a hidden dagger.
“We're just trying to run a company here,” says Stephen Gray, president and co-CEO of McLeodUSA.
Gray has been a cohort of McLeod Chairman and co-CEO Clark McLeod since the 1980s, when the pair worked at McLeod's first venture, long-distance upstart Telecom USA. They grew the company to be the nation's fourth-largest long-distance carrier before selling it to MCI. In 1992, Gray rejoined McLeod and other former Telecom USA senior managers and “dusted off an old business plan from the mid-1980s. It was a business plan for an integrated communications provider,” Gray says.
That plan probably did not have much merit when McLeod, Gray and company first dreamed it up. But by the early 1990s, regulatory limits were falling in Iowa and a few other pioneering states, and the Telecom Act was on the horizon.
The team started McLeod Communications in 1992, (changing the name to McLeodUSA in 1997) and through its nearly decade-long existence, the company has remained devoted to its original business plan to offer not just one service, but local, long-distance, Internet and other services to its users.
“FROM 1996 TO 2000, WE WERE SEEING THE BEST THERE WAS, SO THE CURRENT ECONOMY IS NOT AN INDICTMENT OF OUR MARKET OPPORTUNITY.”
Another part of the plan involved expanding into new markets through smart and timely acquisition. In the last four years, McLeodUSA conducted a string of buyouts that set a blistering pace for the rest of the industry, and gradually extended service coverage to 25 states through the greater Midwest, West, South and East.
“McLeod has had a very strong acquisition strategy that they've been able to keep up in a way that few companies have,” says Saunders.
Gray recognizes that expansion through acquisition is not for everyone.
“When it comes to acquisition, you have to be good at doing deals, and you have to be able to differentiate the advantages of buying versus building to get into new markets,” he says. “There has to be a great advantage to being in the market and a great advantage to buying your way in versus building.”
Also, having money to do the deals helps, and McLeod had $1 billion to play with in early 1999 after a cash infusion from Forstmann Little. McLeod was also as frugal as possible about spending this money, acquiring firms such as CapRock Communications that were troubled financially, but were rich in network assets that McLeod could exploit.
Although McLeod has come to define itself by its acquisitions, its binge may be over for now. Just weeks ago McLeod announced that it would cut 5 percent of its workforce in response to “poor market conditions.”
Gray says the company will now concentrate on business opportunities in its existing markets rather than expanding further.
“Our evolution has been fairly judicious on purpose,” he says. “There is still a huge opportunity in our 25 states, and it is prudent to focus on those for now.”
Despite the recent job cuts and a wilting economy, McLeod has continued to post strong financial numbers, and most financial analysts still rate its stock favorably. It has posted positive EBITDA for 14 consecutive quarters, and has exceeded revenue expectations for 20 consecutive quarters.
With that level of consistency behind him, Gray has a pretty laid-back view of an economic environment that is frightening many people.
“The economy runs in cycles,” he says. “From 1996 to 2000, we were seeing the best there was, so the current economy is not an indictment of our market opportunity. We've made the decision to slow our growth for now, but we'll take the blinders off later and enter other markets if things improve.”>>
McLeodUSA STATS Founded: 1992
Executive Suite: Clark McLeod, chairman and co-CEO; Stephen Gray, president and co-CEO; and Richard Lumpkin, vice chairman.
Markets served: 25 states
Employees: 11,300 (500-600 job cuts announced early June)
IPO details: June 1996; $258 million
2000 revenue: $1.4 billion
1Q 2001 revenue: $433 million
Access lines: 988,100 (end of 2000) |
