Korva is a scroll of the internet’s best ideas.
Licenses for pieces of air
Golder Thoma begins
Thoma was a young employee at First Chicago Bank with a Stanford MBA, raised in the panhandle of Oklahoma, with a Ben Graham and Warren Buffett mindset: don't lose money. In 1980 he left the bank with Stan Goldberg, the banker who had mentored him, to start Golder Thoma. In 1982 that firm was credited with originating the buy-and-build strategy that people now call roll-ups.
The Pagenet licenses
The licenses became the basis of a company called Pagenet. Nobody else was building a business this way, by hand, finding someone to run it and then pushing hard. They kept aggregating spectrum with financing from the banks of the time, and roughly six or seven million dollars of invested capital eventually returned about $985 million. They sold before cell phones became widespread.
A strategy spreads
The approach became the cornerstone of a strategy that was applied to many industries over the next 20 years, some of them good bets and some bad: golf courses, newspapers, and funeral homes.
Why must radio licenses be exclusive?
Two transmitters on the same frequency in the same area garble each other, so a license gives one holder the right to use a slice of spectrum in a defined region. Congress began licensing broadcasters with the Radio Act of 1927 after interference had become chaotic in the 1920s. The Communications Act of 1934 created the Federal Communications Commission to run the system. Because licenses are limited by geography, the same frequency can be reused in cities far apart.
How did a pager actually reach you?
A caller dialed a number, and the paging company encoded the message and sent it to transmitters across the coverage area. Every transmitter broadcast the signal at once, and the pager that recognized its own address beeped and showed the message. The pager only received, so it needed no transmitter of its own, which kept devices small and cheap. Two-way cell phones and text messaging eventually replaced the service.
Why do roll-ups raise a company's value?
A roll-up buys many small companies in one market and combines them under one owner. The combined company can share back-office costs such as finance, legal, and sales support across all the units. Buyers also tend to pay a higher multiple of earnings for a large company than for a small one, a gap that investors call multiple arbitrage. Roll-up strategies have been run in industries as different as funeral homes, veterinary clinics, and software.
More from Joys of Compounding
