In May 2017, Verizon Communications (VZ) beat out rival AT&T (T) in a bidding war to purchase Straight Path Communications, Inc. for $3.1 billion.1 If you were to look at just the quantitative factors regarding this acquisition, you might wonder why either Verizon or AT&T would think Straight Path was such a coveted prize.
At the time, Straight Path’s numbers didn’t indicate it was a company worth billions of dollars. Just a few months before the acquisition, the small communications company had a market capitalization of around $400 million, had only nine employees, and was selling for $36.48 a share. However, the company owned a hugely valuable asset—a treasure trove of Federal Communications Commission (FCC) wireless licenses needed to power 5G, the next generation of high-speed wireless service.
Both Verizon and AT&T knew that whichever company could control these licenses would be a step ahead in building out their 5G business. So, they were willing to pay a premium for Straight Path, causing the company’s share price to skyrocket from $36.48 to the eventual acquisition price of $184 per share. Investors who only looked at Straight Path’s financial statements to value the company in a quantitative analysis might have missed out on what gave the company its competitive advantage and made it qualitatively superior, which was its ownership of those highly prized FCC licenses.