Fay jumps on the mobile bandwagon

By GEOFF SENESCALL

Nine years ago, Telecom was floated on the sharemarket by merchant banking firm Fay, Richwhite.

In a poetic commercial twist, one of the key Fay executives involved in the float is now looking to take Telecom on in one of its key markets - mobile telephony.

He is Leigh Davis, known also for his verse, who has set up a telecommunications and technology investment company called Jump Capital which has just teamed with mobile phone seller Ericsson.

Last week, Mr Davis confirmed the alliance, saying it was actively looking at entering the mobile market in New Zealand.

But with just 16 days to go before the auction of 3G spectrum, which enables high-speed transmission of data over mobile networks, he is not giving much away. He feigns uncertainty by saying that everything is still up in the air.

"All deals are like that - they all come together at the last minute if they come together."

But Mr Davis is obviously interested, saying the spectrum action is the gateway to the development of the three big areas in telephony - broadband, mobility and internet.

Asked about setting up a mobile network here (which analysts estimate could cost $700 million) against the established incumbents Telecom and Vodafone, Mr Davis says it is sometimes "easier to be an attacker than a defender."

Jump, set up this year, has heavyweight backing from private equity partners. Its three largest backers are Oceania and Eastern (the investment company of Robin Congreve, Geoff Ricketts and Chris Mace), Todd Capital and Fay, Richwhite Holding (Sir Michael Fay and David Richwhite).

Jump has house money, as Mr Davis describes it, of $A100 million. But there is more if needed, he says.

Five executives run the company. They are Mr Davis, Bryan Mogridge (formerly managing director of Montana) and Mike Youngman - all of who will be based in Auckland - and Mark Hodge and Udhay Mathialagan, who will operate out of Sydney.

Mr Davis says the starting point for setting up Jump was an awareness that Fay, Richwhite was out of touch with the market.

"We had an old economy-style LBO [leveraged buyout] mentality, or cultural product, which was good and profitable but was becoming progressively out of touch with what the economy was doing both here and in Australia.

"And, also, we were too small. We had too few people and we did not have as much capital as we wanted to do the sorts of things that I thought were valuable to do.

"So the conversation with Michael and David went along the lines of: Well, you've moved to Geneva. I've got a different sense of investment strategy to the one we have been running with.

"We need to organise more people and have a bigger capital base to do that effectively.

"I made a proposal to Bryan and Mark and said, 'Well, what do you think of this investment strategy and shall we put together a firm to take to the market?"'

Mr Davis says that, in a general sense, Jump has been set up as a partnership. But it is a structure that brings in activism, as its investors are businessmen, not institutions.

"We have an investment board, which is like an extension of our team." They are mid- to late-career businessmen who are available for judgment and contributing their networks and experiences.

That board is made up of Robert Bryden of Todd, Mr Ricketts (chairman), Mr Richwhite and David Teece - a New Zealand-born academic living in the US who recently set up a boutique merchant bank called i-cap.

Jump has already made two investments. One is in Crown Castle, which recently bought Cable & Wireless Optus' cell site infrastructure in Australia.

The other is Cuisine Courier, a multi-restaurant home distribution business primarily in Sydney and Melbourne which has about 70,000 customers ordering 400,000 meals a year.

It sends out menus through direct mailouts and receives orders over the telephone and internet.

Mr Davis says Jump thinks of itself as a private equity company with a new-economy emphasis.

"We don't see ourselves as a venture capital company. Venture capital companies tend to buy into products which are looking for customers. They buy businesses which are in mid-stage and have a shape to them and something you can analyse.

"We are prepared to invest in companies that are at an earlier stage to get higher returns.

"High-growth telecoms are something we are very interested in and companies which have platforms which are e-commerce beneficiaries.

"Probably something we understand best is a more proactive style - creating the investments that we most want to buy.

"Very rarely do you get something [exciting] coming through the door in the form of an investment memorandum saying this is 35 per cent in a box."

Being successful in Jump's target market comes down to three things, Mr Davis says.

First is having the vision to predict what is going to happen in, say, five years. Second is to be skilled at putting transactions together. Third is the ability to do a deal at speed.

This last point is very important.

"If you hang around waiting for the big picture then someone else gets it. Look at the wonderful thing [Auckland entrepreneur] Eric Watson has done.

"His advantage is investing at speed. He also has wonderful networks."

However, Mr Davis does point to another aphorism aside from the "early bird catches the worm." It is the "second mouse which gets the cheese."