James Thomson Editor

James Thomson is the editor of BRW. Previously he was editor and publisher of SmartCompany and a senior editor at Business Spectator. He writes regularly on Australia's wealthiest entrepreneurs and has deep expertise in small business and the mid market.

View more articles from James Thomson

How the rich invest: Larry Kestelman’s ripe timing

Published 27 March 2013 08:03, Updated 02 April 2013 07:34

+font -font print
How the rich invest: Larry Kestelman’s ripe timing

Larry Kestelman sold Dodo, the ISP he founded, to M2 Telecommunications for $250 million. Photo: Jesse Marlow

Knowing exactly when to sell is an innate skill that many members of BRW’s rich lists seem to possess. Former Young Rich list member Larry Kestelman, the founder and major shareholder of telecommunications junior Dodo, is a great example of that. Last week he sold Dodo and another company he part owns, Eftel, to M2 Telecommunications for almost $250 million.

After building his business for more than 12 years, Kestelman had one of those moments common to smaller players in a very competitive industry – he realised he had to get big or get out.

“I haven’t had a chance to breathe and think about it – it’s been 12 years of very hard work,” he told The Australian Financial Review after doing the deal.

“It’s not the kind of thing where you sit down and say, ‘At the age of 46, this is where I’m going to be’. The deal as it stood made way too much sense for everyone involved.”

It’s an impressive result for the Ukrainian migrant, who arrived in Melbourne as a 12 year old and dabbled in property before starting Dodo in 2001, in the dark old days of dial-up internet.

Today, the company has more than 400,000 customers with more than 660,000 services across broadband, mobile, power and gas, and even insurance. The deal will allow M2 to become one of the biggest tier two players and a prime candidate to drive even further market consolidation.

Kestelman will share in any upside from that consolidation. He’ll take about $150 million off the table from the Dodo-Eftel deal, with two-thirds in cash and one-third in M2 Telecommunications scrip. He’ll become one of the biggest shareholders in M2; Kestelman and another Eftel director, Michael Slepoy, will own 9.8 per cent of the company when the deal is completed.

On the other side of the deal was another former member of the Young Rich, Vaughan Bowen.

The founder and former managing director of M2 is now an executive director of the group, with a special focus on acquisitions and would have been extremely involved in the Dodo deal.

But Bowen’s sense of timing isn’t quite as good as that of Kestelman’s. Bowen announced to the market in October 2011 and June 2012 that he had sold substantial stakes, raising a total of $13.7 million through the two sales.

Bowen still has a 4 per cent stake but his sales have meant he missed out on the full benefits of M2’s impressive recent run. M2 shares are sitting at around $5, well ahead of the price when Bowen sold his stakes in October 2011 ($3.06) and June 2012 (around $3.44).

Still, it’s not all bad news. M2 shares have increased by about 7 per cent since the announcement of the Dodo deal, taking the value of Bowen’s remaining stake to just over $30 million.

Kestelman looks unlikely to join Bowen on the M2 board at this stage, although he may have some informal role in the business – and a very big stake.

But don’t be surprised if this entrepreneur finds another creative outlet. As he told the AFR: “It’s a big payday and I’m very proud of it. A serial business person with a large bank balance is a dangerous thing.”

Topics:

Comments