Alternative Networks has made its second big acquisition inside a month, snapping up Control Circle for £39.4m.
The AIM-listed VAR has followed up its £11m purchase of Intercept in early January by acquiring Control Circle in a deal that values the managed hosting firm at 21 times' its EBITDA - well above the industry norm.
The move has been funded by new bank facilities of £43m provided by Barclays and Lloyds, replacing Alternative Networks' existing facilities of £6m.
Alternative Networks said Control Circle's managed hosting, cloud and datacentre services are increasingly in demand among its enterprise client base.
Control Circle has turned heads for its lightning growth in recent years but for its last financial year, revenue inched up just one per cent to £21.1m following an "exceptional reduction in revenues from one customer that underwent a significant financial restructuring".
Its EBITDA last year was £1.9m, meaning Alternative is stumping up 21 times' EBITDA to get its man. This compares to a typical multiple in the sector of 14, analyst Megabuyte noted, although it added that the figure falls to 18 based on Control Circle's EBITDA runrate.
"In any event, Alternative has always paid up for businesses that it considers to be strategically attractive, and Control Circle was never likely to be cheap given its market positioning," Megabuyte said. "All in all, a significant and transformational deal for Alternative."
2e2's collapse last year highlighted the shortcomings of the buy-and-build model but Kate Hanaghan, research director at analyst TechMarketView, said Alternative Networks' buying spree should not cause alarm, noting that it had not made an acquisition for nearly four years before Intercept and Control Circle.
"In the post-2e2 era, we always get jittery when we hear of companies making multiple acquisitions in quick succession," she said. "However, it seems to us that Alternative has been preparing for this for some time."
Alternative chief executive Edward Spurrier, echoed this by saying that very few of the numerous hosting opportunities the firm has evaluated in the past three years fulfilled its acquisition criteria.
"Control Circle and Intercept are the only companies that have done so, and we are delighted to include them in the Alternative Networks Group," he said.
"We are delighted to have acquired such a complementary business in the managed hosting arena. Control Circle is an excellent fit not least because, like Alternative, it is asset light, skills rich, and has a focus on premium service and technical excellence to the enterprise market. Like Alternative, it has developed a dynamic online service portal. Control Circle's customers are highly complementary with Alternative's and have a higher penetration in similar industry verticals, principally in the private sector. Given the aligned strategic emphasis and strong growth profiles, the combination of Control Circle and Alternative at this time has highly compelling logic."
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