Daisy Group’s visionary founder Matthew Riley is a paradigm of ambition, motivation and perseverance, all qualities that have bolstered his entrepreneurial dealmaking skills and grown the company he set up in his garage at home 24 years ago into a platform serving almost 700,000 business customers. Comms Dealer caught up with Riley soon after the Daisy Group and Virgin Media O2 Business megamerger deal was inked to get the behind-the-scenes story.
The merger creates a new £1.4 billion revenue powerhouse with VMO2 taking a 70 per cent stake and Daisy Group 30 per cent. Riley has always known that achieving his growth ambitions is dependent on taking bold and proactive actions. And over recent years there have been periodic press indications that he might be on the verge of striking his next big deal – all false dawns – but nobody saw this one coming. The main factor behind the surprise transaction is perhaps the incidental nature of its inception. You see, VM02’s business customer base had long been a favourite target for Riley – who has never taken his eye off the prize despite a number of requests to buy the base being politely and routinely turned down – until last December.
“I’ve always thought the VMO2 Business was a sleeping giant sitting under that big consumer brand,” explained Riley. “It hadn’t built momentum or been fully brought to life, and accounted for less than 10 per cent of VMO2’s revenue and less than five per cent of profit. I felt the business hadn’t seen daylight so I tried a few times over the years to buy it – the answer was always no. I asked again before Christmas and they said ‘no... but, we have another idea’. This proves that if you don’t ask, you don’t get.”
Considering where we’ve come from and where we are now – probably second only to BT – I almost had to pinch myself. It’s a massive opportunity for Daisy Group
Establishing and running a business can be challenging, exciting and very personal. And the exhilaration shown by Riley when the merger completed is rarely, if at all, experienced by business leaders in the channel. Such is the uniqueness and scale of this transaction. “The deal was building for some time and there was a release of emotion and excitement when it actually completed,” stated Riley. “Considering where we’ve come from and looking at where we are now – probably second only to BT – I almost had to pinch myself. It’s a massive opportunity for Daisy Group.”
The trigger for VM02 was that its own merger had been fully integrated and the need to commit to a bolder and longer-term B2B organic growth strategy became more obvious. This prompted a new direction in strategic thinking following Riley’s latest pre-Christmas approach. His persistence ultimately takes Daisy Group’s growth strategy to a whole new level, pushing the boundaries and enabling Riley to write the next chapter in his success story as a totally hands-on Chairman. “I will be driving the strategy full-time and working closely with Jo Bertram on a robust delivery plan,” he added. “I’ll also be doing a lot of listening to customers and suppliers while thinking about what’s coming next – which I enjoy doing.”
First priorities
Riley noted that his immediate plan is to reassure customers and staff, then move the 500,000 strong VMO2 base onto Daisy’s platforms and IT stack. “They currently sit within VMO2’s consumer business so we will lift and shift to give them an excellent customer service experience and a one bill solution from a single portal, with a lot more automation and control over what they want to do with their account,” he added. “This will take 12 to 18 months. We’re used to this kind of integration and change management and are ready to start. Then it’s about giving VM02’s sales force all the products and services we have. They don’t currently sell an MSP range – it’s mainly mobile and connectivity.”
As mentioned, VMO2 saw B2B as a big growth area and wanted to approach the opportunity in a different way – and the foundational migration of its 500,000 customers (building on Daisy’s circa 180,000 base) positions Daisy Group to seize unprecedented opportunities. This is because the huge customer base is a gateway for in-demand MSP products and services. But Riley is not planning to instigate a material change to his GTM growth strategy following the merger. Instead, he will replicate his proven cross and upsell model on a far larger scale.
“The market sweet spot for us is unified comms, and selling hosted solutions into VMO2’s 500,000 customers is a massive opportunity,” commented Riley. “We have a big direct sales force and will be cross-selling UC at a rapid rate. We’ve proved the strategy by selling the HiHi product into our smaller customer base while driving the Gamma Horizon product into our bigger customers. We’ve seen phenomenal success and won numerous awards for our products and services. This is our prime objective for growth – and we just want to grow faster.”
Whichever way you look at it, the merger creates value, accelerates growth and is acknowledged as an M&A strategic masterstroke
Riley expects this strategy to deliver positive net organic growth and an improvement in EBITDA. And he confirmed that acquisitions are on the cards but not for the first year to 18 months while customers are bedding in. He also noted that the resellers and MSPs most likely to thrive in the future are those that align with trends in customers’ perceptions of value. “It all links into that IT conversation – which is where we have been for some time,” stated Riley. “Microsoft is our fastest growing product category and more resellers are starting to realise they need to offer the bigger solution because it’s cloud-based and customers want it. If not, IT providers will eat their lunch. Offering customers Microsoft and cloud products has worked well for us over the past three years.”
Maximising value from deals is becoming more challenging, hence the dip in M&A activity, but the VMO2-Daisy Group merger has many high value upsides. It also provides Daisy with a plentiful source of cheap debt having secured inter-company loans as part of the arrangement. “We have market leading borrowing costs because Liberty Global and Telefonica (the 50/50 shareholders in Virgin Media O2) have access to treasury options that I can only dream of,” stated Riley. “PE-backed companies would likely pay more than double what I’m paying. This allows me to invest further in growth and be more competitive.”
Another significant catalyst for the merger is the economies of scale it enables with around £600 million in equity value expected to be delivered. “The majority of synergy benefits will come from changing the platforms and systems and cross selling products and services into the base,” commented Riley.
Whichever way you look at it, the merger creates value, accelerates growth and is rightly acknowledged as an M&A strategic masterstroke. It’s also testimony to the potentially huge benefits of trying your luck and adds credence to the saying ‘if you don’t ask, you don’t get’. “This merger is a significant milestone in Daisy’s 24 year history,” added Riley. “It will be driven by the entrepreneurial spirit for which we are known and will catalyse the next phase of our ambitious growth plans. I want to say a massive thank you to the teams that helped us. I’m the deal-doer, but I have a big team that helps me get things done. They don’t always get noticed – and they should.”
VMO2 Business-Daisy Group merger factfile...
• The merger of Virgin Media O2 Business and Daisy Group creates a £1.4 billion revenue powerhouse with around 700,000 customers and massive cross-sell growth potential.
• The deal (expected to close in July) sees VMO2 take a 70 per cent stake and Daisy Group 30 per cent.
• Daisy Group founder Matthew Riley will lead the merged entity as Chairman while VMO2 Business Managing Director Jo Bertram becomes CEO.
• The organisation will initially operate under separate brands out of existing office bases.
• Based on full year 2024 performances the new company will have pro forma revenues of circa £1.4 billion, adjusted EBITDA of £150 million and adjusted EBITDA less capex of £100 million.