Redstone comes out of M&A hiding as fees fall

Two of the channel’s biggest consolidators are ready to revive their acquisition plans after claiming valuations have fallen to acceptable levels.
Voice and data integrators Redstone and Azzurri have stayed out of the mergers and acquisitions (M&A) game for a year, with both claiming potential targets were overvaluing themselves.
However, Redstone ­ which has not made an acquisition since Communica, last February ­ is ready to re-enter the fray after quadrupling its fixed borrowing limit to £100m.
Martin Balaam, chief executive of the firm, said: “We are getting ourselves in order for the next stage of acquisitive expansion and now have the capability to do larger things.
“Pre-Christmas, sellers had not realised their businesses were worth less. Now we are having talks where the multiples are viable. For a good IT-oriented business with recurring revenues that is synergistic to your business, you are now talking five to seven times earnings, rather than eight to ten times.”
Martin St Quinton, chief executive of Azzurri, which last acquired Sirocom in November 2006, said: “As acquisition prices become more sensible, mergers are becoming more interesting to us.
“Vendors are realising their long-term valuations are nearer five or six times earnings, rather than eight
or ten. It can sometimes take a year for them to realise there has been a correction.”
However, St Quinton added Azzurri may favour paper mergers this year because the banking market remained “challenging”.
Bob Tarzey, analyst at Quocirca, said: “The different approaches taken by Azzurri and Redstone indicate there is a fair bit of uncertainty on how best to raise money. But it proves businesses see a lot of opportunities out there and that there are a lot of cheap firms to acquire that are worth having.”
Balaam said Redstone would look to spend “in the tens of millions” on acquisitions to complete skills sets, but would not shun larger purchases if the opportunity arose.
Hyped prices bar Redstone