Sometimes The VAR Guy amazes even himself. Over the weekend, he was drafting a blog entry naming four companies that need to go private. His list included 3Com. (He’ll tell you about the other three companies at a later date.) Now comes word that private equity firms have approached 3Com about a buyout. There are five reasons why 3Com and its VARs would benefit from being private. Here they are…
1. Think Long Term: The pressure to hit Wall Street’s earnings expectations every quarter is overwhelming. Many companies sacrifice long-term planning in order to hit short-term profit goals. By going private, 3Com could truly build a long-term business strategy that rewards loyal partners. And if that means a penny-per-share (or more) profit shortfall during a specific quarter, so be it.
2. Think Open Source: The VAR Guy has been waiting … and waiting … and waiting for 3Com to address opportunities in the Asterisk VoIP market. He expected an announcement in the spring but nothing ever materialized. Meanwhile, more and more small businesses are embracing Asterisk-based telephony servers. 3Com needs a more aggressive open source strategy and has to be willing to cannibalize short-term sales if it means long-term success with open source. That’s far more likely to happen if 3Com was private.
3. Think Talent: 3Com was among the 50 worst performing stocks from 1996 to 2006. Surely that has hurt 3Com’s ability to use stock options to attract talented pros. By going private, 3Com could set up new incentive plans that reward loyal employees — and new employees — with a potential payout when the company either (A) gets sold or (B) re-enters public markets.
4. Think Partners: Partners get nervous when their technology vendors hit financial bumps. If 3Com were private, the company’s partners could fully focus on customers rather than 3Com financial bumps.
5. Think Roll-up: There are a lot of small- to mid-size networking companies other there. Enterasys (the former Cabletron, for one) comes to mind. Networking companies either need to be very targeted (like D-Link and Netgear) or very big. One could argue that 3Com is neither targeted nor big. Surely, a private equity owner would explore the potential to merge 3Com with other second-tier networking companies.
Background: The Wall Street Journal first reported on July 17 that private equity firms had approached 3Com about a deal. The VAR Guy first suspected that 3Com would be a target for private equity buyers in October 2006.
Keep an eye out for Asterisk/3Com in the next few weeks.
[...] about 3Com going private has been rampant in recent months. Back in July, The VAR Guy highlighted five reasons 3Com would need to sell itself to the highest bidder. Yes, current management has stabilized the company. But 3Com was one of the [...]
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