11/24/2010 11:23:00 AM
Analysis: Daisy snaps up major rival
The deal brings Daisy a number of key advantages, not least the removal of a major competitor in the telecoms acquisition market. SpiriTel’s acquisition strategy was certainly a thorn in Daisy’s side. Industry sources say SpiriTel bid for at least four of Daisy’s recent acquisitions. One source says: ‘Although Daisy was successful in all of these deals, the competition from SpiriTel must have raised the price of each deal. So removing it as a competitor has got to be a good thing.’
Although much smaller than Daisy, SpiriTel was also growing at a remarkable rate under CEO Alastair Mills’ buy and build strategy.
Mills took SpiriTel from a start up in 2006 to a company valued at over £30m with 4,000 corporate customers. SpiriTel spent £18m on acquisitions over four years, while delivering a 15% organic growth rate.
IS Research analyst Philip Carse says Daisy’s organic growth rate is much more modest and something it is keen to improve.
‘SpiriTel’s rate of organic growth is significant and does compare very favourably with Daisy, and in fact most companies in the sector, with Daisy’s organic growth rate running in lower single figure digits.’
Daisy will be hoping SpiriTel’s sales team will help drive up those organic growth rates.
A critical addition to Daisy’s stable is SpiriTel’s 40,000 mobile connections, of which over 80% are with O2. As part of the acquisition deal Daisy has signed up to become an O2 strategic partner and a member of its Centre of Excellence programme (see news story, page 15).
For O2, the move gives it reassurance that its SpiriTel connections will be protected following the acquisition. Until now, Daisy’s connections have been predominantly with rival network Vodafone.
The advantage for Daisy is that it now has a significant number of both Vodafone and O2 connections. Observers say this will give them greater leverage over both mobile operators.
A source says: ‘The mobile operators hold too much power in terms of connections and through partnership deals requiring virtual exclusivity. With a large number of connections in both camps now, Daisy will be able to play one off against the other.’
SpiriTel also brings the company larger, more lucrative clients than Daisy’s typical SME customers.
Analysts Edison Investment Research say: ‘SpiriTel typically serves a larger customer. Specifically, SpiriTel has about 4,000 customers compared to Daisy’s more than 65,000, which implies that a typical SpiriTel customer generates about twice the revenue per month compared to a typical Daisy customer.’
The move also gives Daisy significant opportunities for cross-selling into SpiriTel’s customer base in terms of hosted services that SpiriTel did not offer its customers.
However, the success of this deal hangs on how successfully Daisy can integrate SpiriTel. Acquisition integration is something Daisy has struggled with, sources claim.
One says: ‘Daisy made a real mess of integrating a number of its acquisitions last summer, which led to staff leaving and some clients quitting.’
Indeed, IS Research notes that SpiriTel has a much more successful integration track record. It states: ‘Our impression that SpiriTel has done a good job integrating the various acquisitions was backed up by Daisy management, who note that all but one of the SpiriTel acquisitions are now on the same billing system (in stark contrast to Daisy’s acquisition of Redstone Telecoms, where the constituent companies were still on multiple billing systems).’
Edison believes Daisy’s future acquisitions could also hang on SpiriTel’s integration into the company.
One Edison analyst told Mobile: ‘This is [Daisy CEO] Matthew Riley’s big test. This is Daisy’s biggest deal and if he can integrate it successfully then Daisy’s backers will be prepared to fund further deals – but he must integrate SpiriTel successfully first.’