Carburton Street, London -- A raft of technology, media and telecom companies hogged the spotlight this morning. The common factor linking most of these companies was simply that they have finally learnt to respect the old rules of the business world. Its very simple, cash and cash flow are paramount if any business is to survive over the long-term. Debt is generally bad and lots of debt is very, very bad.
Cable & Wireless (LSE: CW.) has tossed some small change onto the table and picked up the Japanese web hosting company PSINet Japan for £7.2m. This is the second acquisition that C&W's has made in the space of just a fortnight. Only last week, C&W agreed to buy certain assets of the bankrupt Exodus Communications. Both PSINet and Exodus were said to be market leaders in the field of Internet hosting but both companies eventually ran out of cash.
The wireless telecom company mmO2 (LSE: OOM) has signed a national roaming agreement with Hutchison 3G. Under the deal, Hutchison will have access to BT Cellnet's 99% national population coverage for GSM calls and texting, after Hutchison launches its third generation network. BT said the deal would ensure the "efficient and environmentally sensitive use of existing infrastructure." Simply another way of saying joint development is far more cost effective than internal development.
NTL (Nasdaq: NLI) in an effort to drive down costs and improve efficiency will be freezing manager's pay, instigating a compulsory and voluntary redundancy programme and reviewing the position of all non-essential consultants. High levels of debt, which totals almost £12b, have burdened NTL. The cable operator has seen revenues grow and underlying operating profit has also improved quarter-on-quarter. But more draconian measures need to be taken if the company plans to be cash generating by 2004.
Investing in technology companies can be lucrative but it can also be soul destroying when the companies in which you are invested in go to the wall. This is often not because the company's technology was in any way inferior but simply because the companies in question just ran out of money. For this reason cash and cash flow should not be overlooked when we are looking around for suitable companies to invest in. They are just as important, if not more so, than those other financial ratios that often get bandied about.
More: Valuing shares on cash flow
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