August is usually considered the quiet month of the year, but the UC&C space did a great job of proving that adage wrong this year!
We were kept on our toes reporting on what seemed like a conveyor belt of new acquisition deals being announced during the month.
Adam Zoldan, Director at Knight Corporate Finance, agreed that this August has been an unusually busy one in comparison to previous years.
“Though, there has been a high level of activity throughout the year, mainly driven by the availability of funding to the sector both in term of investment and debt,” he mused to UC Today.
“August is usually relatively quiet due to summer holidays but it’s an unusual year and, as a result, there were more decision-makers available to ensure deals completed, whereas usually we would expect them to drag into September”
The month started with Nasstar sealing the deal to acquire KCOM’s national ICT business, making the former the largest independent managed service provider in the UK. Nasstar – formerly GCI – plans to make the new addition a central part of its growth strategy. The acquisition now leaves KCOM to focus solely on being a regional provider of full fibre broadband.
KCOM has been struggling with its sales for several years now, most recently reporting a seven percent drop in revenue to £262.8m for its year ending 31 March 2020. This is a massive drop from its revenue figures just five years ago which was £349.2m. KCOM itself was acquired by Macquarie Partners last year, so its concentration on the full fibre market is a calculated and savvy move on their part.
It also is a smart move for acquisitive Nasstar, which boasts revenue of around £120m. It is inheriting a reputable ICT unit with a solid customer base and a respectable £166.6m in revenue in the most recently filed accounts.
TelcoSwitch followed up on this with its purchase of SureVoIP, its third acqusition in the first seven months of the year. TelcoSwitch has been overt in its M&A plans, already swooping up OneVoice and PBX Hosting this year. SureVoIP’s addition provides the operator with new infrastructure as well as a new base in Aberdeen. It’s also a canny move from TelcoSwitch offering the potential for more residential-based services in the future, in anticipation of the PSTN switch-off in 2025.
Horizon Capital-backed Modern Networks swooped in on not one, but two firms in August, acquiring Bridge Fibre and Response IT. The acquisition of the former is notable for the role it plays in Modern Networks’ goal of becoming the biggest provider of consolidated IT and telecommunications services to certain verticals.
A standout buyer in August was Babble, who also swooped in on a pair of companies: Concert Networks and 5 Rings. Babble alone has been relentless in their M&A activity this year, with the most recent purchases marking the company’s fifth and sixth acquisitions so far this year. The UC provider has been unabashed in its drive for growth, having received investment from Graphite Capital last year.
It is notable that the companies listed so far are all backed by private equity houses, which have taken a massive interest in channel companies in the last couple of years. The stable and recurring revenues and dependability of the channel are attractive to these investors.
“Private Equity investment into many of the larger UK telecom and IT business has driven the prevalence of the “buy and build” model,” said Zoldan.
“They buy smaller companies on the basis that they are confident they can realise a higher valuation in the future. For most of the buyers, organic growth is relatively low, so their business models rely on a continuous cycle of acquisitions.
“There are more acquirers in the market than we have ever seen before, and this has pushed up valuations for the best targets. In turn, these have tempted more business owners into considering an exit”
Having said that, it wasn’t only PE-backed companies taking part in the M&A spree. Chess ICT, Rydal Group, CloudCoco, and Daisy Communications also made strategic acquisitions during the month. And M&A in August wasn’t exclusive to just the channel, Comcast Business snapped up Masergy and Mavenir acquired Telestax.
The busyness of August 2021 was an anomaly in comparison to the same month in previous years, but it is no more busy than other months of the year. Private equity’s interest in the market has helped drive the momentum, but it is also increased customer demand that is causing IT firms to broaden their offerings and/or geographic footprint.
“August was only extraordinary compared to other Augusts, this level of M&A activity has been strong for over a year,” Zoldan added.
With September starting with the completion of the mammoth Tech Data and SYNNEX deal, it will be fascinating to see what else the market has in store for us for the remainder of 2021.
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