Chess: An Acquisitive History

David Pollock, Chief Executive of Alderley Edge based telecoms company, Chess plc, with 21 acquisitions behind him, has laid out his company’s history of purchasing resellers for readers,

Pollock says there are over a thousand resellers currently in operation in the UK telecoms market and that as technology evolves and the industry shifts towards data and VoIP, customers need something that BT and major carriers can’t provide – consistent personal service.

“Compared to other industries, the barriers to entry into the telecoms market are low. Anyone with a basic knowledge of telecoms and a pack of order forms can go out there and get some customers. And there are more and more resellers doing just that – setting up and offering customers the one to one service that the carriers can’t provide.

However, low barriers to entry and increasing customer requirements as a result of evolving technology mean the market is consolidating naturally.

Inevitably, after a while, cracks start to appear for some resellers. Customers are demanding. They want timely, accurate billing, faultless lines and hassle-free high speed broadband.

Smaller resellers are great at getting customers, but the more you have, the more work there is to be done to keep them happy. Added to the pressures of adhering to all forms of regulatory compliance it’s easy to understand why there are similar volumes of resellers wishing to exit the market, as there are entering it.

Chess wasn’t always a telecoms reseller. It started out in 1993 selling gas and electricity to UK businesses and only moved into telecoms in 1996. The switch of focus was originally due to the opportunities presented by deregulation in the industry; however it soon became clear that the consolidating market offered a wealth of possibilities for the future growth of the business.

When you reach a particular size or hit a certain level in the telecoms industry, it enables you to become a consolidator. This means you are now free, if you fancy it, to play an active role in the amalgamation of the market.”

Chess’ Chief Executive – David Pollock – had been friends with Richard Btesh – a dealmaker within the Manchester Corporate Finance community – for years. When Chess reached the point at which it could start making acquisitions, David brought Richard on board as Corporate Finance Director to facilitate Chess’ first acquisition – Feelfree Communications in April 2004. Was David nervous? “No. Not at all. I knew this was what we had to focus on for the future success of the business. It was all about making the deal simple and straightforward, so all parties could see how they would benefit.”

Feelfree wasn’t strictly Chess’ first acquisition. It had dipped its toe into the water four years earlier with the purchase of SES Communications.

After Feelfree, Chess completed a couple more deals including the acquisition of Entrpreneur Communications in May, before making a deal that would have a dramatic and positive effect on the future growth of the business.

Chess acquired Eurocall Mobile in June 2004. “This development broadens Chess’ portfolio and enables its resellers to target bigger sales in the corporate sector. The deal included 3000 connections, 400 customers, nine of Eurocall’s staff, as well as customer contracts.”

The mobile side of the business was to be headed up by Warren Pryer and Chris Morrisey, former MD and Sales Director of Eurocall and now Chess’ Business Development Director and Sales Director respectively.

“There is currently a lot of consolidation in the market on the back of converged billing of BT line rental and much lower call charges. The smaller resellers and dealers are being forced to consider the viability of their current market position.”

With four successful acquisitions under its belt, it was full steam ahead for Chess completing three more – Activ8, Ocis Lite and Lastword Communications – before the year was out.

“One particular acquisition was memorable,” said Corporate Finance Director – Richard Btesh “One of our sales team – Stuart Webster – heard of some customers that had lost their service. He investigated further and found that the company had gone out of business. The experience we had gained over the course of the year meant we could act fast. It was all hands on deck and we got all the customers back up in just three days! This was after negotiations with a U.S Attorney who was about to go into hospital for an eye operation.”

And Chess’ fast paced activity did not look like it was going to stop soon. “The market is reasonably lively at the moment. There are more acquisitions to come from us,” promised David.

The first acquisition of the New Year was particularly relevant. In March 2005 Chess acquired Hoodpoint Communications, marking its first step into the data market and the future for the business. One year on, Chess sold the hardware business back to the former managing director, retaining the data and having gained the valuable expertise it would need in the future for broadband in the form of Stephen Dracup – now head of technology.

Since 2005, Chess has been steadily acquiring businesses, each time further strengthening its proposition and gaining the experience and knowledge needed to facilitate future growth.

Making lots of acquisitions doesn’t mean you know it all, however. Consolidators can’t afford to be afraid of the unexpected – there are small mistakes to be made on every deal and as a result of this, Chess is constantly learning and improving.

Making acquisitions has also given Chess a wealth of understanding about the business and the industry. A successful acquisition requires an in-depth knowledge of the company you are buying and scrutinising other people’s business processes inevitably means you pick up bits and pieces of information that will help you to streamline your own business.

Chess’ acquisition activity is set to continue at a steady pace.

Its strategic planning means Chess’ focus is on how it will grow and the areas it must focus on in order to achieve growth. As well as looking at the different areas of the business, and closely at the shape at market, this also requires an in-depth look at the products and services offered.

Following this, the initial stage of the acquisition process is to source and attract potential business and undertaking due diligence on that target.

“We have a list of acquisition targets,” said Btesh, “and because we have built up a reputation as being good at acquisitions, the list is growing every month.”

The Chess Acquisition List

1) Feelfree Communications ~ April 2004
2) Entrepreneur Comunications ~ May 2004
3) Eclipse mobile ~ June 2004
4) Eurocall mobile ~ June 2004
5) Activ8 ~ August 2004
6) Ocis Lite ~ October 2004
7) Lastword Communications ~ November 2004
8) Hoodpoint Communications ~ March 2005
9) A voice and data business ~ May 2005
10) Atlantic Business ~ May 2005
11) Gemini ~ June 2005
12) UWT ~ February 2006
13) The Telecoms Group ~ July 2006
14) You Telecom ~ August 2006
15) Activ Telecom ~ August 2006
16) TGB T/A Nationwide Telecom ~ November 2006
17) Qualitel ~ December 2006
18) SLG Communications ~ January 2007
19) Telecomms Direct ~ February 2007
20) Pentel ~ February 2007
21) Adodo ~ March 2007