# Business valuation of telecom companies

Thinking of valuing a company in the telecommunications industry? Consider some key industry stats:

This large and highly diverse industry sector is classified under the NAICS code 517. For example, in the USA there are some 50,600 telecom companies competing across a broad spectrum of product and service offerings. Moreover, the industry as a whole generates a hefty \$545.5 billion in annual revenues. The industry sector total employment is around 1,134,500 with a revenue per employee of \$481,000 per year. But the average telecom business does about \$10.7 million in business annually and employs a staff of some 22 including technical professionals and administrative staffers.

Over 28,000 of companies in the telecom industry have 1 to 4 employees on their payroll. Moreover, of the total of over 50,600 firms less than 5,600 have more than 50 employees.

Where are the telecom businesses found? In the US, the highest density of companies in this industry sector is in California, New York – New Jersey, Texas, Florida, Washington DC, and West Virginia. Of course, just about every geography has a number of successful telecom firms providing a broad range of services to customers around the world.

### Business valuation of telecom companies

Telecom industry is very competitive and successful businesses are highly sought after as acquisition targets. Selling prices of such companies are used as an indicator of market values for similar businesses.

You can compare a target telecom company to its sold peers by calculating the ratios of business selling prices to a number of financial performance metrics. The ratios of selling prices to financial performance figures are known as valuation multiples. And the multiples so derived help you develop an idea of what a given telecom company is worth in the market place.

One of the most useful valuation multiples is business enterprise value to its gross annual revenue.

### Business valuation of a telecom company – an Example

To show you how this works, let’s pick a middle of the road telecom business with an annual gross revenue of \$10 million and inventory of \$1 million. Next, we choose a set of reasonable valuation multiples and crunch the numbers. Here are the results:

Multiple Multiple value Business value (\$’000)
Low 0.46 \$5,608
High 1.18 \$12,767
Average 0.66 \$7,599
Median 0.62 \$7,195