The client runs a specialist hedge fund: amongst their investments they had a significant position with a large wireless technology company with diverse business models. Our client believed they had spotted a hidden synergy between these different business models which other investors had not noticed. These synergies, in their view, meant that the company was undervalued, giving rise to scope for more growth. They planned to invest further in the company, and were seeking independent validation of this strategy prior to the investment.
We conducted a review of the company in question: we examined technology trends in the industry, the company’s offering and business models, and the opportunities for the synergies which our client had observed. We conducted anonymised interviews with key industry figures and created a set of scenarios for the future evolution of the company. For each of these scenarios we analysed the likelihood of occurrence and the impact on the company’s prospects.
We concluded that, while the company was in a good position to continue its business into the future, competitive threats would increase, the company’s differentiation was likely to reduce, and there were hidden factors which could potentially weaken it significantly. The synergies which had been identified by our client, while not well known, were still apparent but crucially we concluded that it did not represent an opportunity for growth.
This was not the outcome that our client wanted to hear: they had hoped to enhance the value of their fund through this extra investment. However we felt it was right, consistent with our role as independent expert advisors, to properly express our views, backed up with the evidence we had gathered and the logic for our position.
Some months later, unprompted, our client sent us the following note:
“I thought I would drop you a note to say how valuable the work was that you and your team did for us last year. We altered our view completely on [company] following the project and sold out of it at around $XX. Today it trades at $XX-40% and the news seems to be getting worse. It saved a reasonable loss to the fund – I would estimate about Z% of our NAV [net asset value], significant in money terms and it would have been time consuming to track and manage the position.
“It might have been tempting to develop a positive spin on the research – this would have been more likely to get follow on work. I admire the fact that you were both confident enough and honest enough to reject our thesis. I am certain that this honest approach to consultancy will help you to build a long-term brand.”
Real Wireless: independent wireless expert advisors.