Comms Dealer

Daisy Group has recommended a 185p per share cash offer from founder and CEO Matt Riley and private equity investors Toscafund and Penta, valuing the company at 11x historic EBITDA, a full price for a business whose EBITDA actually fell 10% in the first three months of the current financial year. With the aim of the P2P being to undertake larger acquisitions than in the past, we consider possibilities.

Report by Philip Carse, Principal Analyst, Megabuyte:
The offer acceptance comes just over two months since the approach was made public, with the share price being chipped from 190p to 185p in that time. The offer price is 16% above the price when the first approach was made (apparently at the end of July) and compares with a price of 80p when Daisy arrived on AIM and raised funds in the Summer of 2009. The offer already has irrevocable undertakings in respect of 93.8% of the shares. The approximate £494m cash cost is being part financed by a £135m PIK (payment in kind) loan and £265m in senior banking facilities.

The bid represents 11x EBITDA to the year March 2014. The company has also published financial information for the three months to June 2014 showing EBITDA down 10% at £12.2m on revenues down marginally at £84.7m. The flat revenues masked some considerable underlying swings, with Networks down 15% at £32.2m, Mobile up 10% at £24.9m, Data up 8% at £21.4m and Systems up 31% at £9.7m. The EBITDA trend is contra to the marginal increase to £58.0m expected for the current year.

The private equity backers to the bid are well known to Daisy and to UK telecoms; Toscafund has been a long term shareholder of Daisy whilst Penta Capital currently owns Six Degrees and sold its previous UK telecoms play - SpiriTel - to Daisy in November 2010. The offer document states that whilst Daisy has been approached in the past by other companies and private equity investments, no other formal offers have been tabled, including since the Riley et al interest was publicised.

First thoughts
Just like buses, we have now had a second public to private in the space of a week, after HgCapital's £110m bid for workforce management software provider Allocate Software. The Riley consortium is paying a full price for a business that is essentially flat, even after the recent price shaving, with 11x historic EBITDA (and 10.9x current year consensus based on stable rather than declining EBITDA) above the 6-10x of most of its UK listed telecoms peer, with only Alternative Networks on 11.9x above the offer price.

So what next? The stated rationale for the take private is for Daisy to undertake larger acquisitions that in the past, involving more risk and time for proper integration etc, and drawing up the resources of the new private equity backers. At the time of the take private being publicised in August we speculated that targets could include Phoenix IT, in which Toscafund owns the maximum possible stake of 29% without having to launch a bid. Phoenix would increase Daisy's approximate £58m annual EBITDA by a half and the combination would have a much stronger presence in mid market IT and comms services, albeit with a major integration challenge. Phoenix's current enterprise value of £157m is about a quarter of Daisy's £635m.

We also speculated about Six Degrees, which is also backed by Penta and Toscafund, though this deal seems much less likely, albeit that it would add substantial strategic value in terms of hosting and networking capabilities. Other acquisitions that would fall in the 'larger' category could include Redcentric (£21m EBITDA) or carve outs such as Kcom's UK business comms division (£29m EBITDA). There will also be plenty of private equity exits to come from IT/hosting businesses over the next couple of years, including Adapt Group, Onyx and Intrinsic, though these would be smaller deals in EBITDA terms. If Daisy wanted to boost its position in the smaller end of the market, Universal Utilities (£25m EBITDA) and Chess (£11m EBITDA) could be targets. 

A Consortium led by Daisy CEO Matt Riley has offered to acquire the entire issued and to be issued share capital of Daisy not already owned, or agreed to be acquired, by Bidco. Under the terms of the Offer, Daisy Shareholders will be entitled to receive 185 pence in cash for each Daisy Share.

Further to the announcement by Daisy Group that it was in preliminary discussions with Toscafund Asset Management LLP, Penta Capital LLP and Matthew Riley, the Chief Executive Officer of Daisy (with Toscafund, Penta and Matthew Riley being together referred to as the Consortium), the Consortium and the Independent Directors of Daisy announce that they have reached agreement on the terms of a recommended cash offer pursuant to which Chain Bidco plc, a newly incorporated company owned by the Consortium.

Christina Kennedy, Senior Independent Non-Executive Director of Daisy, said:
"I am pleased that we have reached agreement on the terms of an Offer that represents a good outcome for Daisy Shareholders and enables them to exit at a premium for cash. The Independent Directors believe that the Offer represents good value and an attractive balance between the future opportunities and risks facing the business and have therefore decided to recommend unanimously the Consortium's Offer to Daisy Shareholders."

Peter Dubens, Executive Chairman of Daisy, said: "I would like to thank Matthew Riley and the management team of Daisy for their skill and hard work in implementing an acquisition-led strategy which has delivered shareholders 185 pence per Daisy Share compared to the placing price in the 2009 reverse takeover of 80 pence per Daisy Share, an increase of 131.3 per cent. When compared with the increase in the FTSE AIM All Share index of 27.5 per cent. since Admission, I believe that this represents a good outcome for all Daisy Shareholders."

Matthew Riley, Chief Executive of Daisy and a member of the Consortium, said: "The Company has enjoyed loyal support from its shareholders over the five years it has been quoted on AIM. The Offer provides Daisy Shareholders with a cash premium today and represents a positive development for our 59,000 customers and continuity for our 1,500 employees; it also positions the Company for its next phase of growth in the UK telecoms and IT sector, with the backing and strategic and financial guidance of Toscafund and Penta."

Hats off to the winners of this year's Comms National Awards (sponsored by Nine Group), the most coveted and celebrated awards for the ICT channel. Designed to enable all types and sizes of UK channel players to participate, the awards event took place on October 16th at the prestigious London Hilton on Park Lane, London (www.cnawards.com).

Top TV comic Marcus Brigstocke led proceedings with an inimitable stage presence that outshone the spotlights.

This year's hall of fame includes Chess CEO David Pollock who received the Outstanding Contribution Award for his remarkable efforts in raising £5m for charity (pictured). Honours also went to IP Solutions which scooped a trio of award wins including Reseller of the Year.

THE 2014 COMMS NATIONAL AWARD HALL OF FAME

Vendor Awards

Best Mobile Network Provider - VODAFONE

Best Fixed Line Network Provider - GAMMA

Best Wholesale Service Provider for companies with under £10m turnover - VOICEFLEX

Best Wholesale Service Provider for companies with over £10m turnover - VIRTUAL 1

Best ISP - ZEN INTERNET

Best SME On-Premise System - ERICSSON LG

Best Enterprise On-Premise System - 3CX

Best End Point or Device - JABRA

Best Hosted Platform - SPITFIRE

Call Management Solution - OAK

Best Billing Platform - UNION STREET

Best Convergence Distributor - WESTCON

Best Mobile Distributor - TOTAL

Best Installer/Maintainer - COMMS-CARE

Reseller Awards

Best SME Contact Centre Solution - IP SOLUTIONS

Best Enterprise Contact Centre solution - BRITANNIC TECHNOLOGIES

Best SME Vertical Market Solution - SOUTH WEST COMMUNICATIONS

Best Enterprise Vertical Market Solution - CONTENT GURU

Best Enterprise Mobility Solution - FIRSTNET SOLUTIONS

Best SME Hosted Solution - IP SOLUTIONS.

Best Enterprise Hosted Solution - AZZURRI

Best SME UC Solution - FRONTIER VOICE & DATA

Best Enterprise UC Solution - GREEN FIELDS

Nine Customer Service Award - AERIAL

Reseller of the Year - IP SOLUTIONS

Outstanding Contribution Award - CHESS CEO DAVID POLLOCK

Headset maker Sennheiser is rewarding brand stewards who prioritise the sale of its UC and headset solutions with a new incentive scheme and a prize draw every Friday.

Sennheiser has urged resellers to submit orders to The Blue Space portal for a chance of winning a prize from a range of goodies that includes Sennheiser Sports PMX 680 headphones, Sennheiser SP20 Speakerphone, Professional Photo Shoots and Prints, Wine Tasting At Home experience, and 20 x Gourmet Society Membership Cards.

Each week there will be at least two winners, one from the prize draw and one for the largest deal value.

The Sennheiser Blue Space service offers resellers sales and marketing resources, product information, white papers, fact sheets, high resolution images, videos and guides.

The majority of SLAs for cloud services are misaligned to the real requirements of customer according to Paul Marland, Director of Account Management at Claranet.

He believes that good service cannot be reduced to 99.99% availability and that too many cloud providers are locked into uptime and availability as the core metrics against which their services are evaluated.

"Service is far more dynamic and can change over the course of a contract, meaning it is important to develop new performance objectives that are meaningful to the customer with respect to their changing business needs," stated Marland.
 
"The vast majority of SLAs don't get to the heart of what's important to customers. Or, at the very least, fall short of guaranteeing what customers really need and expect beyond uptime and availability."

He pointed out that as businesses have come to rely more heavily on third parties to deliver their IT, and as solutions have become more complex, good service can't simply be reduced to the pure metrics of service availability.
 
"That a provider is meeting the levels of uptime specified by their SLA will be of little solace to the CEO or FD who can't access their emails fast enough, or the online retailer missing out on sales because of slow page loads," he added.

"These performance-based issues have proven to be something of a bugbear for the service provider industry - a grey area that falls beyond the remit of the traditional SLA, but remains key to the overall customer experience."
 
Marland urged the service provider industry to look beyond measures of uptime and availability to measures of service that are meaningful to end users and contract against them.
 
"The industry tends to measure against technical metrics, but it's important to remember that it's the end user's actual experience that counts.

"End users can have a situation where their SLA is being met and exceeded by their provider but are still not seeing the levels of service that their business now requires.

"When this happens, it is often a sign that the SLA is too generic and objectives have not been set that reflect the specific performance needs of the end user." 
 
The problem, he says, is that a standard SLA does not reflect the true dynamic nature of the relationship that now prevails between customer and cloud provider.

"The SLA is a traditional foundation for the contract, but it should not be used as the basis of how we work together," he said. 
 
"The best MSPs understand this and are able to assess what they do in the context of the end user. An SLA is a good baseline contractual agreement but, as the relationship evolves, so too must the level of measurable engagement to suit the performance and optimisation criteria of each customer.

"MSPs need to look at those things that are actually meaningful to businesses, in essence, bringing end user performance objectives into the agreement."

Nimans' hosted telephony service has been lauded as a significant expansion of the distributor's reseller portfolio and to prove the point the company staged aviation themed reseller events at the Yorkshire Air Museum and London's RAF Museum where resellers earned their wings as providers of hosted telephony.

GS-hosted (formerly known as Nimans' GreenSkies Hosted) offers resellers upfront or recurring revenue opportunities fin a model that Nimans says could 'turn hosted voice on its head'.

The proposition enables resellers to sell hosted in a different way and includes a free three year hosted seat licence with every handset purchased.

A choice of three models are available - Standard, Advanced and Executive - with upfront margin potential of 45% or recurring margins of 65%.

"Hundreds of resellers have already signed up and made enquiries about the service," said Nimans' Group Sales and Business Development Director, Richard Carter.

"We've been blown away by initial interest that has exceeded all expectations.

"The roadshows were the perfect launchpad to help resellers get the service off the ground.

"The brand name may have been tweaked but the hosted service and the opportunities it creates remain the same."

The European conferencing services market is undergoing significant transformation in terms of its composition according to analysis from Frost & Sullivan.

In 2013, audio conferencing accounted for 66 percent of revenue in this market, with web and video conferencing accounted for the remainder.

By 2019, audio conferencing is expected to account for just over 51 percent of the market, while web conferencing will claim more than a quarter of the market.

Video conferencing - especially hosted solutions - is anticipated to register a double-digit compound annual growth rate within 2013-2019.

Frost & Sullivan finds that the market generated revenues of $1.78 billion in 2013, and estimates this will reach $2.58 billion in 2019. The study covers audio, hosted web, hosted video and managed video conferencing services.

Improvements to the user interfaces of conferencing solutions and the ability to connect via mobile devices are sustaining market development. The increasing recognition of the business benefits of high-quality conferencing and collaboration solutions is also driving the European market forward.

"Robust conferencing software caters to two key trends in the modern workplace; more collaborative work environments and the need to work remotely with ease," said Frost & Sullivan Information & Communication Technologies Senior Research Analyst, Vaishno Devi Srinivasan.

"Since conferencing solutions are well aligned to the latest developments in the working environment, service providers in this space are likely to taste considerable success over the forecast period."

The low cost of conferencing solutions is a particular attraction for end users in the European market, which is still recovering from the recent economic downturn. Unfortunately, the declining price points affect conferencing service providers' revenues. To add to market woes, pure conferencing service providers are losing market share to service providers offering unified communications (UC) bundles that include conferencing features.

"The ability to provide UC and integration services is key to attract customers in the European conferencing services market," noted Srinivasan. "In the next 2-3 years, conferencing service providers' integration capabilities will be put to test as services become part of broader UC platforms. Service providers would do well to align their product strategies with their integration capabilities."

Additionally, market participants across Europe must demonstrate the return on investment (ROI) that is attainable with conferencing solutions to win and renew contracts with customers. Although hard-dollar ROI carries more weight, market participants should also highlight the softer benefits of conferencing solutions to the workplace.

Resellers wanting to upsell and include commission in their leasing deals can either take the cash value or buy items from a catalogue of points-based options under a new scheme introduced by Nimans.

"Speaking to dealer principles they see this as a way to reward their sales staff as an added incentive to sell more leasing," said Group Sales and Business Development Director Richard Carter.

"They recognise the benefits of customer retention and can increase revenue by using leasing for their end users, who even today require a further credit option from an overdraft or loan which is not as tax efficient."

A new interactive marketing agency launched by industry dab-hands Steve Kemish and Andy Grant claims to take integrated marketing to a new level, delivering creative solutions backed by measurable metrics.

The pair have built their reputations on devising creative and accountable strategies but according to Kemish the shift in marketing isn't just a move to digital.

"It's a shift from broadcasting messages to focusing on creating great branded experiences that benefit both the client and their audience," he said.

"Junction was created to respond to marketers' simultaneous needs for new and disruptive business strategies, digitally-led marketing ideas, and the data, technology and scale needed to execute them efficiently around the world." 

Managing Partner and founder Grant added: "We're an interactions agency, not a communications agency. We can address not just brand awareness or lead generation, but all the points where audience and brands come together, no matter what the platform or channel." 

Grant also noted that Junction's integrated model is based on its data-centric approach and use of analytics tools. These allow the firm to optimise and improve its work over time, and to provide clear and detailed metrics that help clients accurately assess the impact and Return On Investment of their campaigns and initiatives. 

The firm develops solutions across the full marketing landscape, combining traditional marketing with digital media including mobile, web, inbound, online advertising and social media. 

"We are pleased to demonstrate that marketing does not have to continue in the same mode - There's another way," said Grant.

Global network services provider Genius Networks has added 4G quoting to its reseller portal.

The portal enables resellers to price and provision network connectivity from a single platform.

James Arnold-Roberts (pictured), Genius Director, said: "For the channel, 4G provides new intelligent solutions and real opportunities.

"It is flexible, quick to set up, enables fast downloads and provides an alternative method of communications to fibre or copper."

"4G is suitable for businesses looking to set up an office quickly as it overrides the need for fibre into the building.

"It can also provide enterprise level speed of delivery that can be used as a back-up for fixed line services and for sending large files of data quickly.

"While there is some way to go in the rollout process, 4G and 5G could offer a real alternative to fixed line in the future."