Alternative Networks acquisition of the Telecom Centre Ltd, trading as Echo Communications
03 Sep 2007
The Board of Alternative Networks plc (“Alternative Networks” or the “Group”), a leading independent business-to-business telecoms reseller, is pleased to announce the acquisition of The Telecom Centre Ltd, trading as Echo Communications (“Echo”), and its subsidiaries for a maximum consideration of £14.3 million (the “Acquisition”). The initial consideration of £12.0 million is payable in cash of £11.0 million and through the issue of 590,882 new ordinary shares in Alternative Networks to principal shareholders in Echo (representing approximately 1.3% of the Company’s current issued share capital. The cash element of the initial consideration will be funded through the Group’s existing cash resources.
The initial cash consideration of £12.0 million is subject to adjustment (up or down) once Echo’s net asset position at completion has been determined. Together with other agreed adjustments, the maximum additional cash consideration payable by Alternative Networks is approximately £0.6 million.
Deferred consideration of up to £2.3 million is payable one year from completion of the Acquisition based on the performance of key divisions within Echo over the next 12 months. Approximately £2.1 million of the deferred consideration is payable in cash. The balance of approximately £0.2 million of deferred consideration will be paid to the principal shareholders of Echo by the issue to them of up to 113,809 new ordinary shares (representing a further 0.2% of the Company’s current issued share capital). In certain circumstances Alternative Networks may pay cash rather than issue shares in respect of deferred consideration.
All new ordinary shares issued as consideration will be credited as fully paid and will rank pari passu with the existing ordinary shares. It is expected that admission of the initial consideration shares will become effective on Friday 7 September 2007. The Echo shareholders who will receive shares have agreed that they will not dispose of any such shares for one year after Completion.
About Echo
Established in 1987, Echo sells a converged suite of telecom and data products ranging from digital and IP based Private Branch eXchanges (“PBX") through to fixed line and mobile services. Based in Earlsfield, London, Echo employs 120 people, including 30 sales based staff and 45 engineers. Similar to Alternative Networks, Echo has invested in its own direct sales force and client managers selling to mid market Enterprise businesses and Small and Medium Enterprises.
Echo’s latest audited accounts for the financial year ended 31 March 2007 reported turnover of £15.4 million, with pre-exceptional EBITA of £1.1 million. At 31 March 2007, Echo had net assets of £2.0 million. Currently, Echo has net assets in excess of £1 million. On March 27 2007, Echo acquired for £1 million the contracted customer base of a competing London based PBX maintenance and network services provider, including 200 customers, which made no contribution to revenues or profits in the period.
Echo focuses on PBX sales and maintenance, which represented nearly two thirds of turnover in the year ended 31 March 2007, and the deferred consideration of £2.3 million is dependent on these revenues and profits. Echo has attained the highest possible accreditation from its key suppliers and is a Platinum reseller for both Mitel and Avaya. Echo also provides maintenance services to customers with Alcatel, Ericcson and Panasonic PBX Systems. Maintenance services are recurring revenues with long term contracts and were £3.2 million in the year just ended.
The remaining third of the business includes Fixed and mobile voice and data products such as fixed line services, WLR, data circuits and services, and mobile, where it is a reseller of O2 and Vodafone network products. Fixed line revenues last year were £3 million. Within this figure, WLR revenues were only 10%, compared to 25% for Alternative Networks, showing room for growth. Echo’s mobile revenues of £2 million were generated by approximately 2,100 connections.
Echo has a long established business customer base across the UK. Customers number approximately 1600 in total and include Augusta Westland, BPP, Watson Wyatt Worldwide, Henderson Global Investors, and Diesel Clothing.
The founder director and majority shareholder Richard Bampfylde will remain with the business, as will sales director Simon Turner and operations director Ray Williams.
Rationale for the acquisition
After a comprehensive and careful search for an acquisition to enhance Alternative Networks’ position in the market, the Board is confident that the acquisition of Echo will add significantly to the Company’s scale and experience, improving its market position.
Echo’s strong relationships with Avaya and Mitel and their broader experience in Systems complements Alternative Networks’ existing smaller presence and, combined with Alternative Networks’ strength in their Networks and Mobile offerings, creates a more balanced Group with a much broader offering in Advance Solutions. The Board of Alternative Networks believes future growth lies in converged mobile products and in a new suite of fixed line products converged with broadband access; and the Board is confident that this acquisition will ensure the Group is better placed to take advantage of that evolution.
In addition there are a number of key benefits:
- An excellent customer fit in the small/mid enterprise market of 50 to 500 employees, with clear cross-selling opportunities particularly in Mobile data and WLR where Echo is sub scale.
- A broader product range in PBX and data enabling the Group to service a wider group of customers and to sell a broader range of solutions to their existing customers, which is expected to reduce customer attrition across the base.
- Echo has a successful track record in selling, installing and maintaining larger Systems for small corporate customers and, more recently, the public sector, both of which present new opportunities for the Group.
- The similarities between Echo and Alternative Networks in its cultures, direct sales methods, geographical locations and customer profiles, are expected to facilitate rapid integration and provide a sound platform on which to accelerate growth.
- The acquisition is expected to be earnings enhancing for the year ended 30 September 2008.
James Murray, CEO of Alternative Networks, commented:
“Acquisitions are a key part of our growth strategy and we are extremely pleased that our thorough search of many potential acquisitions over the past 18 months has delivered such an excellent opportunity. We believe Echo’s 20 year experience in systems, will enhance our offerings and make this a perfect fit for the business as we consolidate our position in this niche market. Following this acquisition, we will be able to sell more products to an expanded SME customer base, and in time, a wider, more complex telephony switch to a broader customer set. I see this acquisition as a cornerstone in building a comprehensive converged product offering, and it will put us in a powerful position as the PBX and mobile phone become interoperable and convergence becomes a reality.”
Richard Bampfylde, founding director and majority shareholder of Echo commented:
"I and the Board of Echo are very excited by the joining of our two organisations. We have been watching Alternative Network’s progress with interest over the years and the opportunity to combine our complementary skill sets was too good for us to turn down. Given the synergies between the two companies, we feel that the combination of Echo expertise in delivering unified communications solutions and Alternative Networks position as a leading Service Provider will enhance both our offerings and continue to deliver the highest quality of service to our clients as well as offer exciting growth opportunities for the enlarged group."
As trading continues in line with expectations the Board retains the positive outlook it expressed at the Interim results and believes the Group will meet its expectations for the current year.
NOTES TO EDITORS
Alternative Networks is a UK business-to-business communications reseller. The Group offers a full range of fixed line, mobile, voice and data products. Launched in 1994, Alternative Networks has achieved a track record of consistently profitable growth and in February 2005 listed on the Alternative Investment Market.
Strategic relationships have been developed with the UKs leading voice networks including BT, Cable and Wireless and Verizon. As specialists in bespoke mobile voice and data solutions, Alternative Networks are one of the largest independent mobile service providers in the UK for both O2 and Vodafone, including membership of the exclusive O2 Data Centre of Excellence. Gold accredited reseller status has also been awarded by Mitel and Avaya.
Alternative Networks specialises in larger SMEs and smaller corporate customers in the UK and has over 4,000 business customers including JC Decaux, Channel 4, Miele and Securitas.
The Group has grown rapidly over the past 13 years, now employing over 300 people across four UK sites. At the last financial results in 2006, Alternative Networks reported pre-tax profits of £6.8 million on revenues of £66 million.
For media enquiries please contact:
Alternative Networks
0870 190 7444
James Murray, Chief Executive Officer
Ed Spurrier, Chief Financial Officer
Financial Dynamics
020 7831 3113
Juliet Clarke / Hannah Sloane
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