PARTNER CHANNEL: Agents Cash Out of Telcorp Agent Equity Program

Posted: 5/2003

Agents Cash Out of Telcorp Agent Equity Program

By Khali Henderson and Tara Seals

In what may be the first equity program payout, agents for switchless reseller Telcorp Ltd. cashed out after the company closed its acquisition by NUI Telecom, the telecom unit of energy company NUI Corp., on April 2.

In the all-cash deal, NUI Telecom acquired the 13-year-old company's primarily commercial long-distance customer base for about $3.5 million, plus an additional undisclosed payment based on Telcorp's sales results from June through November 2002.

Steve Samuels, former president of Telcorp and now a consultant with NUI Telecom, says the payout was a validation of his company's commitment to the channel.

"It was always our view that with the excess of capacity -- which turned out to be true in hindsight - that the channel was going to become more important than anything else," he says, explaining the underpinnings of the agent equity offer. It was tendered in 1999 to entice agents, with payouts ranging from 12.5 percent to 65 percent of their contribution to the company's revenue.

What made it sweeter, Samuels says, was that the payouts, which ranged from $25,000 to $700,000, were far in excess of the amounts Telcorp had projected its agents would take in.

"When we did our projections for our agents in terms of what they were likely to get, we were realistic based on our current performance at the time, and we managed to increase that performance so substantially that we increased the payments to our agents by a factor of about 60 percent," he says.

To be fair, some of that boost -- the company doubled its income -- came as a result of the guarantee of a payout during the six-month window. But, Samuels said he hand picked agents to invite into the program at the time and focused on those that could land mid-market and large enterprise customers--in the end, NUI Telecom acquired about 1,500 such accounts.

Telcorp agents will continue to earn commissions on the accounts acquired by NUI Telecom. Telcorp also will continue to operate as a brand under the NUI Telecom banner for about a year before transitioning to the corporate branding. At that time Telcorp agents will be rolled into the NUI Solutions Express program.

Samuels and Telcorp's director of operations David Luther will stay on with NUI Telecom as consultants. Samuels has been working the NUI Telecom's Executive Vice President of Sales and Marketing Tom McCrosson to integrate the agent programs, and says the task in nearly completed. He expects to spend his time capitalizing on the buzz around the payout to boost agent recruitment efforts.

"While many people saw the [equity] model as 'erroneous,' it has become reality for those that stayed the course and believed in our ability to execute," says Daryl Heller, president, CEO and director of sales for master agency Premier Management Group, one of the founding participants of the plan, noting that two initial acquisition deals fell through. "It's been a long journey...the protracted deal process classically demonstrates the maniac-depressive environment intrinsic to deal-making, while the subsequent results reflect again to me the principle value of fortitude, resilience and commitment in execution within business."

Prior to Telcorp, the closest thing to an equity event was a special distribution made by UniDial to its agents in October 1998. Following a $27 million cash-for-equity injection from the Williams Network in Tulsa, Okla., UniDial offered the distribution to agents participating in its original "Bonus Program," which gave agents 25 percent ownership of their base for a $25,000 agency fee. The program was discontinued in April 1997. Agents were offered the choice to remain under the original program or opt for an accelerated payout schedule and a reduction of the bonus to 21.875 percent upon the sale of their accounts. A third option eliminated agents' rights to a bonus commission on the sale of their accounts, in exchange for a refund of the agency fee paid. More than 200 agents were eligible for the special distribution, which UniDial estimated to be $8 million to $10 million.