In 1994, Derrick Rowe had a $5-million two-way-radio company that serviced oil rigs in the NorthAtlantic out of St. John's, Newfoundland. The business was relatively healthy, but Rowe had big ideas.He gave it a new name--Stratos Inc.--and quickly moved to enter a tough-but-growing global market:mobile satellite service.
The problem was capital. Satellite equipment is expensive. Rowe didn't think he could raise enough tostart selling satellite time to big corporations. So he devised a strategy that would give him long-termcredibility with investors.
Rowe knew that several large communications companies were running unprofitable mobile-satellitedivisions. If he could acquire those business units at fire-sale prices, he could get into the businesscheaply. But his first moves needed to be smooth if investors were going to fund the rest of his plan.
Rowe's first acquisition target was IDB Mobile Communications, a troubled company co-owned byWorldcom and Teleglobe. IDB wholesaled satellite time to carriers like Sprint and AT&T. Rowepersuaded IDB to let Stratos serve as a distributor for its services--in essence, becoming a retailer toIDB's wholesaler. But his larger mission was to gather intelligence about the company so that he couldlater make an informed bid.
In return for selling IDB's service, Rowe got a window to the company's soul. He soon decided that thereason IDB had floundered was that the company never tailored its service to customers' needs. "IDBreally needed to beef up customer care," Rowe says. "Nobody at IDB was on the front end talking tousers."
In 1996, Rowe made a calculated offer and swapped 30% of his own stock for Teleglobe's 50% stake inIDB. The transition to new ownership went very smoothly, since IDB's staff already knew Rowe. "It waswelcomed by us because people had been exposed to Derrick and were very impressed with his style,"says IDB vice-president Joanne Suppa.
"We went in quickly and built a direct sales force," Rowe says. The following year, Stratos boughtWorldcom's stake for $5 million in cash, plus $1.5 million in convertible shares. Today Stratos is whereRowe wanted it to be: it sells hardware and satellite time to communications companies like CNN aswell as to the military. It has completed four acquisitions since IDB and had $91 million in sales lastyear. Rowe says that his hands-on distribution experience has taught him "all the tricks" of the industryfor superior due diligence. --M. H.
MIKE HOFMAN was previously editor of Inc.com and a deputy editor at Inc. magazine, which he joined in 1996. The site was nominated for a National Magazine Award for Digital Media in 2010, and was named the best business website by Folio Magazine. In 2006, Hofman was part of a team of writers nominated for a Webby Award for best business blog. He lives in New York City. @mikehofman