ERF Buys into Wireless Banking
By Adam Stone
In the eternal struggle between build-it and buy-it, Dr. H. Dean Cubley has gone off the deep end. It's all about the buying, and it’s a strategy that seems to working.
As chairman and CEO of publicly-held ERF Wireless, Cubley has been busy buying up all the pieces he needs to deliver wireless connectivity to the banking industry -- and the industry is responding.
Founded in 2004, ERF Wireless had barely opened its doors before it made the first of what have been eight acquisitions to date, the most recent being Home Wireless Company of Kemah, Texas. That first company, SkyView USA, had already carved out a space delivering wireless services to the regional banking industry.
“They had found a market niche with no competition,” Cubley says.
Coincidentally, ERF Wireless had been looking for something to buy. As Cubley saw it, consolidation was the only sensible growth pattern in the world of WISPs, where mom-'n-pop operations had all but topped out.
“The owners are not paying themselves what they are worth: they are pouring in money just to keep the business going,” Cubley says. “They can have 1,000 subscribers and still not be giving themselves even a token salary.”
Cubley has been more than happy to relieve them of the burden. His company’s acquisitions have helped it gain a stronghold in the banking industry, where, he says, wireless can resolve significant logistical issues.
“Traditionally, when you deposit a check at the branch, you have to be there before three o’clock -- then the bank has to close at three o’clock in order to take those checks and physically carry them back to the operations center, which might be 100 miles away,” he says.
Using relays every 35 miles, Cubley can build a wireless network from branch to ops center, making it possible to scan the checks and save the drive.
In addition to providing the wireless connection, ERF Wireless also maintains the networks and handles any service issues that may arise. Here, too, Cubley has found acquisition to be the most effective method for getting to the finish line.
Among the wireless providers he has acquired, “they have all the talents, the tools and technicians that are required to maintain these networks,” he says. “Everywhere we have a bank presence is where we are looking for wireless companies to buy.”
With operations in southern Louisiana, Missouri and Texas, Cubley says he is confident about winning future business. For example, ERF Wireless just bought a WISP covering 20,000 square miles around Lubbock, Texas. It’s true the company has no bank customer lined up there yet, but Cubley says that with the network in place, a customer will follow shortly.
“There is a bank right in the middle of that where we are confident of closing the deal,” he says.
Cubley does not buy blind. He typically will watch a company for one to two years before moving to acquire. Ideally, the target firm will be competent but overstretched.
“Every one of them has a customer service department, every one has to do their own billing; they are duplicating these functions over and over, and for a small business there is just too much of a cost to doing that,” he says. By consolidating, ERF Wireless gets all the competence at a fraction of the cost.
However, the numbers are not exactly stellar here. From $320,000 in its first year, the company has grown to almost $2 million, but still is running in the red. (Cubley hopes to be in the black this year.) On the other hand, the approach has strong backing, with a $4.5 million investment from Cubley’s family (“My mother is the largest stockholder in this company,” he says) along with $1.5 million from a hedge fund and another $1 million from a private placement to high net worth individuals.
Even as he builds his network of banks, Cubley has an ace in the hole.
Motorola provides the hardware for this venture, and has shown strong support, writing three white papers on the ERF Wireless effort. Cubley engages Motorola technicians to handle his installations. When it comes to building credibility, Cubley said, it helps to have a big-time player like Motorola in your corner.
“We definitely are pleased that Motorola has taken this interest in us,” he says.
February 27, 2007
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