Fast and Furious

Meet the fearless dealmakers who are firmly back on the acquisition trail.

Meet the fearless dealmakers who are firmly back on the acquisition trail.

‘Our bank has been brilliant,’ says Alistair Mills, cheerily. These are not the words you usually hear from a CEO, but then not many bosses have overseen five acquisitions in as many months. Mills, who heads up telecoms consolidator SpiriTel, recently bought Nessco for an initial cash consideration of £1.2 million.

‘We are looking to create a complete business communications service for customers,’ he says, observing that the sector is undergoing a period of massive change. ‘There is a move towards voice and data solutions, and traditional resellers can see that the writing is all but on the wall for them. There are probably around 1,000 telecoms companies with sub-£5 million turnover. It’s a real buyer’s market – a cracking consolidation opportunity.’

A total of 11 deals have been conducted since 2006, when there were just 17 employees. Now there are 140 staff, turnover is around £24 million and Mills says that it’s not only the smaller companies he’s identifying as acquisition targets. ‘I put in a bid last year for a company that had a turnover of £150 million,’ he comments.

Marcus Hanke, CEO of AIM-listed IT company Avisen, recently oversaw the takeover of Xploite in an all-share deal worth up to £11.38 million. It’s Avisen’s sixth acquisition since its reverse takeover of Z Group in February 2009. ‘It’s an exceptional deal for their shareholders, and so long as we do the job right on our side, it’ll be brilliant for our shareholders too,’ says Hanke.

Share alike

The next three to five years will see Avisen continue with its buy-and-build strategy. Each of the deals so far has been conducted purely through shares, which Hanke says is testament to the strength of the management team: ‘We’ve done everything with paper. Ideally, that’s how we want to do it going forward as we’d like to use the cash we get in for working capital to grow the business.

‘People have confidence in us and are prepared to take paper, rather than be cashed out. They can see the upside of taking paper now and holding onto it while we develop the company and the liquidity in the share base improves.’
By contrast, Mills prefers to stick to cash on deals. ‘Since 2007, nothing has been done with paper. I think putting paper in the hands of shareholders can be quite risky as there is a bit of overhang there. Plus, if you’re an entrepreneur and you’ve run a telecoms company for 25 years, holding paper in a small AIM-listed business won’t be top of their list.

‘Our structure on deals nearly always involves a lot of cash on completion, a small amount in deferred and then a smaller figure again for an earn out.’

For both Hanke and Mills, it’s essential to get the due diligence right on buy-outs. ‘We use the same firm of accountants on all the acquisitions,’ says Mills, noting that completion times have ranged from five months to eight weeks.

Hanke says that for the Xploite transaction there was a lot of due diligence on both sides. ‘The deal kicked off in anger after the new year. They had to get comfortable with our business and our numbers to recommend the offer.’
Bertrand Diard, co-founder and CEO of open source data management company Talend, identified Amalto, a US company, as a good takeover target last year. He says that the whole takeover process took no longer than three months and the main reason for the acquisition was that, while Amalto had great technology, it lacked the necessary market deployment. He says, ‘The due diligence was not particularly difficult. Once you identify an acquisition, what’s important is your ability to find and create value.’

On the hunt

Although pricing multiples generally favour the buyer, there are companies that can still hold out for respectable sums. ApaTech, a specialist in bone repair technology, was bought out earlier this year for $330 million (£220 million) by US healthcare group Baxter. David Holbrook, a partner at venture capital firm MTI, saw the potential of ApaTech back in 2004 and the firm invested £4.5 million. The company, a university spin-out, was then generating sales of £160,000 but at the time of the sale was one of the fastest-growing companies in the UK with sales of $60 million. ‘It was growing at around 300 per cent per annum for five years, if not more,’ says Holbrook. ‘As I understand it, the multiple paid for the company was fairly healthy.’

There won’t be a rush of mega deals in 2010, but certainly the management teams behind ambitious companies are fixing their cross hairs on companies that will create extra value. ‘We expect as busy a 2010 as last year, if not more so with the size of the transactions getting larger,’ says Hanke.

At SpiriTel, which has the support of buy-out fund Penta Capital, the plan is very much to track down companies that have strong recurring revenue and visible earnings. ‘The banks like the fact that we know what we’re doing on integration,’ says Mills. ‘The senior management team has been together for four years and, while we haven’t got all the acquisitions right – we made some mistakes in the early days – we know the sort of companies we’re looking to acquire and how to structure the deal. We have a formula that works.’

Nick Britton

Lexus Ernser

Nick was the Managing Editor for when it was owned by Vitesse Media, before moving on to become Head of Investment Group and Editor at What Investment and thence to Head of Intermediary...

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