Kansas City, MO – April 10, 2009
Avazpour Networking Services Inc. has landed an exclusive agreement with SureWest Communications that could pump up revenue by millions with no initial cash outlay.
The agreement signed this month lets SureWest sell Avazpour’s IT outsourcing services under its brand to local businesses. SureWest, based in Roseville, Calif., bought Kansas City-based Everest Broadband Inc. for $173 million early last year.
CEO Jim Avazpour expects the agreement to add $1 million to $1.5 million to revenue this year and as much as $5 million next year — doubling local revenue. The 25-employee company also expects to ramp up hiring, potentially employing 50 to 75 people by year’s end.
“We truly believe that SureWest and their brand name in Kansas City can help us greatly in landing more business,” he said.
The service offers an unprecedented level of IT support through a local telecom company, Avazpour said. Offerings range from a help desk that employees can call to resolve tech problems to a complete IT outsourcing bundle, which eliminates the need for companies to buy or manage servers, pay for software upgrades or hire IT consultants.
“There are very few needs of telephony and data services that SureWest can’t offer,” said Ed Butler, executive director of business solutions and commercial sales for SureWest. “But there were some elements we weren’t offering that our customers were asking about … something that would offer extra value to existing customers, extend our play in the market area and fill a gap, a need that we feel exists today.”
The companies didn’t disclose details of the revenue-sharing agreement. SureWest posted 2008 revenue of $230.4 million and earnings of $18.9 million.
Avazpour said his company is pursuing similar agreements in other markets.
Dave Cummings, managing partner of New York-based investment banking firm Agile Equity LLC, characterized the agreement as a big win for Avazpour. Agile Equity follows the IT services market closely but doesn’t do business with Avazpour.
“For a company like Jim’s, it certainly could be a sea change,” he said. “If they execute to a ‘T,’ I think it will work out well for them.”
And SureWest can offer the IT services without the outlay of building them internally. If the arrangement works well, Cummings said, SureWest potentially could acquire Avazpour.
Avazpour has about 35 local business clients. The company already has two salespeople dedicated to calling some of the 3,000 local SureWest business clients to introduce the IT outsourcing as a new division of SureWest, powered by Avazpour; two more will be added in the next couple of months. Next year, SureWest plans to have 17 of its salespeople selling Avazpour services.
Avazpour said the offering will target a niche market of businesses with 20 to 2,000 users, which often are overlooked by national companies.
“More and more companies are looking at outsourcing IT,” he said. “Demand for IT outsourcing is what really makes our partners excited about what we can offer their client base.”
IT outsourcing has been gaining popularity as a way to cut costs and move IT expenses to operating instead of capital expenditures budgets.
The SureWest-Avazpour agreement is unique on a regional and local level, Cummings said. The greater the breadth of services offered, he said, the greater the chance regional companies like SureWest have of hanging on to clients and not being usurped by national companies. Such an agreement is a model for others.
“I think a lot of smaller, regional players have to look to create a comprehensive products and services offering that can meet clients’ needs,” he said. “Clearly, it’s going to continue.”