Redcentric bins potential sale as revenues thrive
MSP plans to invest in resources to win new business after the conclusion of lengthy FCA investigation
AIM-listed Redcentric has canned its plans to sell due to a lack of "fully funded offers".
The MSP launched a formal sale process in early September after its fiscal 2020 put it in a good spot to increase its value to its shareholders.
However, despite talks with a number of parties - which included KCOM owner Macquarie Group and Six Degree Holdings - a sale has not transpired. The MSP is taking itself off the market, but it is still keeping the door open for acquisitions of its own.
"The board has held constructive discussions with a significant number of interested parties," it stated in an update.
"However, these discussions did not materialise into any fully funded offers. Redcentric, therefore, today announces that the board has decided to terminate the formal sale process with immediate effect.
"The board is focused on building on the existing strong momentum within the business and…will continue to evaluate potential options in relation to organic growth and/or potential acquisitions that might be made by the company in order to achieve maximum value for shareholders in the medium term."
Despite this setback, the managed service provider had a positive H1, according to a trading update this morning.
Redcentric's revenue grew to £46.2m for the six months ending 30 September 2020, a seven per cent increase on the same period last year. Recurring revenue now makes up the bulk of that figure, contributing £41m to the overall turnover, a six per cent increase on H120.
The company's operating profit jumped 38 per cent to £7.6m and EBITDA increased by 19 per cent to £12.3m.
"I am pleased to report that the business is performing very well with revenues growing, strong profit margins and excellent cash generation," stated non-executive chairman Ian Johnson.
"Our very significant presence in the public and private healthcare sectors, highly relevant products and high levels of recurring revenues combine to put us in an excellent position to withstand the current challenges associated with COVID-19 and the downturn in the wider economy.
"The outlook for the remainder of the year remains positive, although the board remains cautious in respect of the longer-term economic uncertainty posed by a prolonged COVID-19 pandemic.
"We also announced today the termination of the formal sale process that commenced earlier in the year. With the FCA investigation now firmly behind us, the business performing well and low levels of net debt, we are in a strong position to consider a number of other strategic options for improving shareholder value, including appropriate acquisitions to add scale and capability."
The company has been the subject of a lengthy investigation in recent years by the Financial Conduct Authority (FCA) which concluded with an £11.4m settlement to shareholders earlier this year.
CEO Peter Brotherton stated that this investigation hampered Redcentric's ability to win new business and that now the issue has been settled the firm will be deploying new sales resources in H2.
"Whilst we have a loyal customer base that continues to buy more and additional products from us, we have struggled over the last four years to attract new logos into the business," he stated.
"We believe that the FCA investigation over this period has been a significant reason for the reluctance of organisations to move their mission critical IT infrastructure over to Redcentric.
"With the FCA investigation now concluded, this barrier has been removed and we will deploy additional sales resource in the second half of the financial year ending 31 March 2021 to attract new private sector logo business.
"Sales timelines are typically six months, with installations taking three months, so our renewed efforts in this area are unlikely to materialise into increased revenue until the financial year ending 31 March 2022."
Martin Courtney, principal analyst at TechMarketView, remarked that the ending of the investigation and a potential sale now quashed indicates a clearer path ahead for the firm than it has had for some time.
"It remains to be seen whether the H121 momentum can now be carried into the second half of the current financial year given further pandemic induced economic restrictions," he said.
"But with the FCA investigation now settled by an £11.4m fine and takeover speculation quashed, there is little doubt that Redcentric has a clearer strategic path forward now than it did twelve or even six months ago."