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NORTHLAND AND GEIB FIND OPPORTUNITY, REWARD IN SOUTH AMERICA



When Patricio Northland, XP-66 (’97), asked executive program classmate Doug Geib to join him in a Latin American telecommunications venture in 1996, Geib didn’t hesitate for a second.

“He laughed at me and said, ‘You’re crazy, it’s a lemon,’” Northland recalls. Geib’s reaction didn’t stop Northland, who in 1996 joined the ailing InterAmericas Communications Corporation–now known as FirstCom–crafted a business plan, and eventually persuaded Geib to leave his partnership at Ernst & Young for a position as chief financial officer at the firm. Together the duo have built a $163 million, 250-employee multinational firm that offers high bandwidth telecommunications services to customers in Chile and Peru.

Northland admits that FirstCom didn’t look like much of a company in 1996 when a colleague approached him about taking it over. A two-year-old entrepreneurial venture, FirstCom had no money. The company’s board didn’t want FirstCom to fold, and Northland seemed an ideal candidate to engineer a turnaround. He had considerable telecommunications experience, having founded and run Americatel, a Latin American telecommunications company, in the early 1990s. In 1993 he engineered a joint venture between Americatel and Entel, Chile’s major long distance operator, and by 1996 he had just sold his interest in Americatel. “I reviewed the [FirstCom] material and decided there was a big opportunity, especially in Peru, where there is a monopoly of communications and deregulation was fairly new,” Northland says. “I decided I wanted to be the underdog, to fight the big guys.”

The big guy, in this case, was Telefonica, a Spanish-owned telecommunications corporation that has dominated the market in many South American countries.

Northland knew Geib from the GSB, where they were completing their course work in the executive program. A partner at Ernst & Young in Cleveland, Geib had almost two decades of finance and accounting experience that included raising capital and selling private companies. It was just the kind of expertise Northland needed to help resuscitate and grow the struggling FirstCom, but Geib was not easily sold on the project. “I knew how far away we were from fundraising,” Geib says, “and as good of a salesperson as Patricio is, I thought he was really underestimating what needed to get done in order for the company to raise capital and be successful.”

Despite his initial misgivings, Geib visited FirstCom’s Miami headquarters, spent some time with Northland, took a long look at the business plan, and ultimately decided to take the risk. “I really liked what I heard when I went down there, what Patricio told me about his vision,” Geib says, “and I knew this kind of opportunity might not come up again. So I started to go through my own decision model. I knew that if I ever left Ernst & Young, it would have to be for a more entrepreneurial business, which this is. And I wanted it to be in an emerging industry, which this is.” He had been discussing the possibility of an international assignment with Ernst & Young, but adds with a laugh, “Florida looked better than Singapore to my wife.”

Geib signed on. The first order of business was to upgrade the company’s public listing from OTC to Nasdaq in order to gain more credibility. Geib and Northland began working closely with a New York investment bank that promised to do a high-yield bond offering for $100 million; however, FirstCom ended that relationship after four months when it became apparent that an offering was not going to be completed. Undaunted, Northland and Geib engaged Union Bank of Switzerland, put on a road show, and raised $150 million in a high-yield offering. Luck was on their side: they closed the transaction just a few days before a major crash hit the market in October 1997.

Northland and Geib have split the past two years between the company’s Miami headquarters and its Chilean and Peruvian operations, selecting and training local management teams and overseeing operations. The on-site work in Latin America has brought some surprises. Northland, who is Chilean, was familiar with the business culture of Latin America. Geib, however, says he operated within a U.S. paradigm and sometimes had to adjust the definitions and ideas he had previously worked by.

“I was sometimes surprised at how different the cultures were between the U.S. and Latin America. Not in a good or a bad way, just different,” Geib says. “I came from a culture at Ernst & Young that consisted of professionals who were highly trained, very disciplined, and worked from a common framework,” Geib says. “As a result, they were greatly empowered to make the right decisions. Although I generally believe in giving employees a significant amount of leeway in making decisions, I also learned that such empowerment requires employees to have a common understanding of acceptable boundaries and enough training to know when one needs to ask for help.” At FirstCom, for example, written policies were necessary to ensure that employees understood the guidelines for U.S. publicly traded companies, such as compliance with the Foreign Corrupt Practices Act. On one hand, he says, FirstCom is an entrepreneurial company, and on the other hand they have found it necessary to maintain an extremely controlled environment in terms of written policies and procedures.

Another challenge has been disseminating information about the company. “We’ve had to make more of an investment in educating Wall Street and other people as to what we’re doing as a company,” Geib says. The firm has created an aggressive investor relations program that generates and publicizes company research. “When you’re big like Coca-Cola or CISCO there’s a lot of good information available. But for the smaller cap companies like ourselves, there’s nothing out there. Patricio came up with a new formula that says the valuation of the company is market perception plus net present value. It’s another way of saying that market efficiency is different for a firm our size.”

They must be getting it right, because FirstCom is on solid ground with projected 1998 revenues of approximately $14 million, an amount that is expected to triple in 1999. They are one of the few companies licensed to compete with Telefonica in Peru, and they recently acquired a long distance carrier in Chile. Within the next five years they expect to operate in six countries–Chile, Peru, Colombia, Brazil, Argentina, and Venezuela–and they are extending their reach into the rapidly growing field of Internet services like electronic commerce and voiceover Internet protocol, which sends voice calls over the Internet to be received by a PC.

“The business customers in Latin America have a significant need for state-of-the-art, fiber optic based telecommunications services in order to stay competitive with the rest of the world,” Northland said, assessing the region’s potential growth in telecommunications. “Most of the incumbent providers have been slow in developing these services because they have been so focused on closing the gap in installing a sufficient number of access lines to the numerous residential customers. This creates a significant opportunity for new telecommunications providers like ourselves because we do not have to redesign or transform an existing legacy of copper wires.”

And while the company is still relatively small, Northland has big plans. “With a blend of good fortune and key acquisitions, I see the company becoming a second-tier telecommunications company competing with incumbent entities in every [Latin American] country,” he says, adding with a laugh, “and in 10 years, you’ll probably read in the paper that we’ve taken over WorldCom.”

–M.M.B.

 

 


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