Comms Dealer

Report by Philip Carse, Principal Analyst, Megabuyte:
Provider of telecoms services to small businesses XLN has changed owners, with Blackstone's GSO Capital Partners backing a secondary buyout from ECI for a reported £140-150m, or about 8x trailing EBITDA, mainly or wholly with debt. Ex-Travis Perkins CEO Frank McKay has been appointed Chairman. Could XLN be limbering up to pounce on United Utilities?

XLN is a South London-based provider of a full range of telecoms services to the smaller end of the business market, as well as related services such as credit card processing, insurance and energy. The most recently available accounts for the year to March 2013 showed EBITDA of £15.3m on revenues of £65.1m ECI backed an SBO from Zeus in September 2010 for £77m and this latest deal comes almost four years to the day.

Blackstone's GSO Capital Partners division has supported the latest SBO for an amount reported in the Sunday Times at £140-150m. Where GSO seems to be different is that it provides mainly debt; hence one assumes that XLN's founder Christian Nellemann has retained most if not all of the equity in this latest deal.

First thoughts
The timing of this deal comes as no great surprise given that ECI has been invested for four years. Including a special dividend paid in 2013, ECI claims a 3x return on its investment. With EBITDA of £15.3m in the year to March 2013 and expectations of double digit EBITDA growth, EBITDA of £17-18m for the year to March 2014 implies a trailing valuation of about 8x, in line with sector multiples.

On the assumption that most, if not all, of GSO's funding is in the form of debt, it also suggests that XLN will be fairly leveraged. However, the company is highly cash generative, with typically solid EBITDA conversion and minimal capex.

So what next for XLN? The stated aim at the time of ECI's investment of consolidating the UK small business telecoms market did not really happen with XLN buying just two small businesses - Shine Telecom for £2.6m and Card Processing Solutions for £3.8m -  with only the former representing consolidation of a similar business.

Christian Nellmann would probably have liked to buy its main independent challenger in the small business market - Universal Utilities - but was pipped to the post by private equity investor Vitruvian in May 2011.

With Vitruvian in its third year of ownership of Universal Utilities and with Blackstone presumably providing more firepower (it has $70bn in assets under management), could XLN be getting ready to pounce on UU?  Such a deal would double XLN's size at a stroke, with EBITDA increasing by perhaps 1.5x given UU's much better margins and making the business the undisputed number two behind BT in that part of the market.

Commsworld has achieved the ISO27001 accreditation for Information Security.
 
ISO27001 was awarded to the Edinburgh based Communication specialists following a review by external auditors lasting 9 months, endorsing the security and strength of the company's data policies and processes.
 
Ricky Nicol, Chief Executive, said: "We are proud to have many recognised accreditations as well as awards for our contribution to the industry and this one in particular is very special as we believe there are very few firms of our size in Scotland who have received it.
 
"Gaining ISO27001 signifies an important step for us commercially as it will allow us to show recognised security credentials to business who insists on that level of accreditation, therefore opening the door to a number of potential new clients who we believe could benefit from our services.
 
"There are also many other benefits as it will allow us to retain and reassure current clients, reduce some costs such as insurance premiums and therefore increase our profitability."

The next phase of Azlan's Momentum programme for Cisco resellers is under way with the addition of the Momentum Business Advisor team, a group of specialists dedicated to helping new Cisco Partners drive opportunities and grow sales.

Azlan has been running its Cisco Momentum programme throughout Europe for over two years, providing support and resources for new and developing Cisco resellers who are looking to build out successful Cisco business practices.

The new Advisor will serve as a central resource, providing expert assistance on every aspect of Cisco programmes, processes and incentives, as well as advice on training, specialisations and business development.

Gary Lloyd, Sales Director for Azlan's Cisco and EMC business unit, stated: "Momentum is great opportunity heavily sponsored by Cisco to develop tomorrow's key partners to enable Azlan to grow market share faster than any other distributor.

"Azlan is already seeing great results in other countries and I am keen to replicate in the UK."

As well as the Business Advisor team, Momentum partners have access to a number of Azlan tools and capabilities. These include an e-commerce portal that makes it easy for partners to create quotes, place orders and maximise Cisco Services renewal opportunities.

Resellers can also make use of a free registration service for Cisco SMARTnet support offerings, as well as Azlan's Cisco Product Selector, which helps identify the right product for SMB and mid-market customers, and the InTouch online ordering system, which ensures resellers get the best pricing available and can leverage the latest Cisco offers.

A survey of London taxi drivers has found that 190,000 mobile phones are left in the back of the city's taxis every year, highlighting the need for businesses and individuals to back-up, encrypt and password protect their devices in the event of it falling into the wrong hands, and the data being stolen, compromised or abused.

There are around 24,000 black cabs in London and the study found that a taxi driver finds an average of eight mobile phones in the back of their cab every year.

Half of the devices found in taxis are completely unlocked, meaning anyone who finds the phone is able to gain access to the confidential information it holds.

Mark James, security specialist at ESET, said: "Today we use our mobiles for a multitude of tasks, whether it's our online banking or connecting to corporate email systems, and we do not want our devices to fall into the wrong hands.

"Our study shows that despite the huge publicity cybercrime receives in the media today consumers still do not see themselves as a real target. This is naïve and wrong.

"Cybercriminals are well aware of the fact that our mobiles contain connections to corporate networks and sensitive information and they will take advantage of this. Consumers should as an absolute minimum use a password to protect their device in case it is ever lost, however a good security posture would include encryption and a remote wipe facility."

Other items left in the back of taxis included:

• The chief of NATO's briefcase
• An inflatable banana
• A dog
• 400 packets of jelly
• £100,000 worth of Stocks and Bonds
• a pair of false teeth

Brendan Lynch has joined Azzurri Communications as Sales Director, moving from Eircom where he was working as a consultant to the CEO in Ireland.
 
Lynch has a successful track record of leading teams in the telecoms sector across the UK, Europe and India, and previously worked as Director of Business and Partner Markets at Virgin Media Business, where he was responsible for developing and executing the company's sales strategy across both enterprise and wholesale markets.

Chris Jagusz, Azzurri's CEO, commented: "Brendan's industry knowledge and insight will be invaluable in helping us to further solidify our position."

Lynch added: "Azzurri is well positioned to help our customers address their business challenges by effectively exploiting the latest technology developments while managing and reducing their costs, and I'm relishing the opportunity to get started."

The deadline for the proposed take-private of Daisy Group by a consortium led by Daisy CEO and founder Matt Riley has been extended to 5.00pm on 20th October 2014, by which time the consortium must either announce a firm intention to make an offer for Daisy in accordance with Rule 2.7 of the Code, or announce that they do not intend to make an offer for Daisy, in which case the announcement will be treated as a statement to which Rule 2.8 of the Code applies.

A statement released today said, 'This statement is being made by the Company without the prior agreement of the Consortium and there can be no certainty that a firm offer will be made, nor as to the terms on which any offer might be made.'

In September Riley made a tentative take-private approach for the business at 190p per share backed by investors Toscafund and Penta Capital.

At the time Philip Carse, Principal Analyst, Megabuyte, said: "A 190p offer would value Daisy's equity at about £490m, giving an enterprise value of £600m, or about 10.3x current year consensus EBITDA. This is comfortably above the 6-9x of most of its UK B2B peers, though below Alternative Networks M&A-boosted 13.2x (though still 11.3x financial year 15).

"One clue to what Daisy may seek to do if privately owned comes from the other UK comms holdings of its backers - Phoenix IT and Six Degrees. A combination of the three would create a £600m UK business comms and IT player, behind only BT and Vodafone/CWW."

ECI Partners has sold portfolio company XLN Business Services to XLN's management team in a secondary buyout (SBO) for a reported £140-150m backed by GSO Capital Partners.

XLN was the first investment from ECI's Fund 9 in September 2010 and this exit has yielded ECI a 3x return on its investment.

During ECI's period of investment XLN made two bolt-on acquisitions, acquiring Card Processing Solutions (to provide a credit and debit card processing service to its customer base) and Shine Telecom (a smaller provider of fixed line telecoms to small businesses).

Former CEO of Travis Perkins and of Brakes, Frank McKay has been appointed as the new Chairman of XLN, taking over from the out-going chairman John Donaldson who will remain on the board as a non-executive director.

Founded in 2002 by its current CEO, Christian Nellemann, XLN is a provider of fixed line, broadband, energy and bank card processing services to small businesses across the UK with a particular focus on micro SMEs with between one and 10 employees.

Nellemann is the UK's only serial entrepreneur to win the Ernst & Young Entrepreneur of the Year award twice.

Nellemann said: "The backing of GSO, a blue chip investor, is a strong endorsement of our entrepreneurial approach, our high quality management team and the opportunities for acquisitive and organic growth that we have.

"I look forward to widening our crusade to help more of Britain's Heroes of the Economy, the micro SMEs, get a better deal on business services and receive the world class customer service that they deserve."

Tom Wrenn, Partner and head of ECI's TMT team said: "Since 2010, the business has achieved a huge amount and this deal adds to our strong track record in backing high growth businesses serving the small business market."

Incoming Chairman Frank McKay said: "I am delighted to be joining such an exciting and fast moving company and supporting Christian and his team in taking XLN to the next level."

The acquisition vehicle was advised by Catalyst Corporate Finance.

Vaioni Wholesale has made a multi-million pound  investment in a new 100Gb super-network across its core with Juniper.

The upgrade boosts the current network and brings significant levels of capacity and capability to Vaioni Wholesale's Manchester Network and the northern region where the Ethernet connectivity and cloud services specialist is concentrating its efforts.

Vaioni Wholesale MD Sachin Vaish (pictured) commented: "Vaioni Wholesale continues to invest in its people, systems and now its network, ensuring our channel partners have a competitive edge and an enterprise solution that competes against the bigger operators.

"With the new super-network, it gives us the ability to provide more 1Gb and 10Gb services and greater support to complex cloud solutions."

The new Juniper network gives Vaioni a total 25Tbps of capacity, 100Gb+ bandwidth, 100% network uptime, with 'huge' capability across the network in London, Manchester, Leeds, Edinburgh and Dublin.

US-based provider of API gateway and cloud security technology, Forum Systems, now has a deal with ASM Technologies which becomes its preferred distributor partner for the UK.

Apart from the UK, Forum Systems has already had a network of channel partners in place across a number of European countries, with no more than two per country.

However, it sees more potential in boutique disties, such as ASM, and ‘consulting outfits' that have a "heavy touch-point" with end customers.

The plan for the European channel is to aggressively engage with consulting companies that possess local expertise and understand the Forum's solutions.

The company's flagship product is Forum Sentry, which has achieved a globally recognised security standard Network Device Protection Profile (NDPP) compliance certification, and it is the API gateway that does not relies on OpenSSL but provides instead its own location for SSl processing and private key management (cryptography), the company says.

In Europe, Forum also plans to target 'highly-trained' distributors and a large number of system integrators. However, since Europe is much different from the US it sees big differences in the way the business is conducted in each market, particularly in terms of sales and payments cycles.

According to Forum, there are the geographies which require some longer business cycles, but on the other hand countries such as the UK, Germany, Netherlands or Switzerland are quick adopters of new technologies.

Although Forum has been typically associated with the commercial, government and military sectors as its solutions are dedicated to protect sensitive and critical data, in Europe it intends to target telcos, public agencies, healthcare and manufacturing as it sees ‘the most dynamic set of factors' in which it has successful deployments, it says.

"Europe has continue down the path of integration, yet establish controls to ensure that its openness is not exploited. We see a desire for significant information exchange between government agencies and commercial sectors across EU nations, especially related to the movement of people and money.

"EU is at geopolitical inflection point where it has to continue the free movement of resources for economic vibrancy without compromising its security. Forum Systems believes that the European nations will accelerate their initiatives to collaborate and protect their citizenry," said President and CEO of Forum Systems, Mamoon Yunus.

Insight EMEA has created a new services division, pulling in a new VP from Cisco.

The move follows recognition from Microsoft as its Cloud Partner of the Year at Microsoft's Worldwide Partner Conference. Insight now employs 5,200 globally and has sales of over $5.1bn.

The new Services business units, under Rolf Adam as VP of Services and a new Partner Service Alliance Programme, as part of the new Services Unit, will support alliances with 'country' best-in-class service providers as well as Pan-EMEA partners such as Colt, the Hosting & Service Provider, with 'In country' Datacentre Cloud & Services offerings.

"Many decision makers today, particularly those in the corporate client segment, are seeking partners who can provide strategic advice on future IT investments as well as delivering and managing this.

"This is why we're establishing a new Services business unit, having attracted a senior leader with sound expertise in services and establishing strategic alliances with vendors and partners across EMEA," said Wolfgang Ebermann, EMEA President at Insight.