Alternative Networks CEO: M&A mission accomplished

VAR to take stock after three-year acquisition hunt yields deals with Intercept and Control Circle in quick succession

Alternative Networks' chief executive says the VAR is done on its M&A spree after quick-fire deals with Intercept and Control Circle this month thrust its turnover past the £150m mark.

Talking to CRN, Edward Spurrier said his firm had run the rule over several hundred targets over the past three years before selecting Intercept, a managed desktop specialist, and Control Circle, a managed hosting player, from a short-list of ten candidates.

"We floated on AIM ten years ago and made four acquisitions in the space of ten years, the most recent being three years ago, and we had been looking for two separate assets in managed hosting and hosted desktop and virtualisation," he said. "Control Circle and Intercept are the two deals we've done this month, which makes us sound like we're on some kind of jamboree. But we won't be making another acquisition for a while."

Instead, Alternative will now focus on integrating its two conquests' services into its portfolio and cross-selling them to its base of 5,000 customers, Spurrier said.

Alternative Networks saw turnover hit £114m in its last fiscal year ending 30 September but the contribution of Intercept and Control Circle are set to propel revenue to £138m this year and £155m in its fiscal 2015, Spurrier said.

Alternative stumped up £39.4m - or 21 times EBITDA - for Control Circle but Spurrier denied his firm had overpaid, claiming that the earnings multiple drops to nine if the figure is based on what Control Circle is forecast to earn in 2014 and factors in its assets.

"We paid what we considered a fair price for a business we consider one of the best in the high-end, complex hosting space," he said. "There was no auction but Control Circle was a highly sought-after asset."

Spurrier added: "We looked at several hundred companies. We had very stringent criteria. They had to be growing, profitable, cash generative and earning enhancing in the first year. They also had to be a very good fit across our customer base, ideally with high-end technology skills sets we can take quickly into our own high-end customer base."

Spurrier said Control Circle operates an asset-light model as it leases rather than owns the datacentres in which it hosts its customers' applications.

"It had been on our radar for quite some time as its business model and strategy was similar to our own," he said. "We had been talking to them for over nine months. When you are dealing with entrepreneurial businesses it can take time to pursuade the owners to sell their babies. We understand that, as nearly half of [Alternative Networks] is still in the hands of management and we have been good at persuading entrepreneurs to sell their businesses to us, and not someone else."

Having come from a fixed and mobile telecoms background, Alternative still counts BT, O2, Vodafone, Avaya and Mitel as among its main vendor partnerships. But the VAR has spent recent years expanding into the data and IT world, adding partnerships with Extreme Networks, Juniper and - following the Intercept acquisition -Citrix in the process.

Alternative already boasts 500-600 enterprise customers and Spurrier said the goal is to target these larger customers with a wider range of kit and services.

"We think there is an opportunity in the market to compete with larger enterprises around an increasingly converged and broader product set," he said. "When we have been invited to bid for supply to larger enterprises in the past we have had to hand off products and services we are now able to sell. There is an opportunity to broaden our services into our client base and make ourselves stickier with those clients."