Daisy Group CEO Matthew Riley’s £470m bid to take the company private could be driven by plans to merge Daisy Group with cloud and hosting companies Phoenix IT Group and Six Degrees, a leading communications analyst said this week.
The move would create a major telecoms group to rival Virgin Media, BT and Vodafone’s unified comms business.
Riley is leading a consortium made up of Daisy Group’s largest shareholder Toscafund Asset Management and private equity group Penta Capital. Toscafund’s holding in Phoenix IT and Penta Group’s ownership of Six Degrees have prompted analysts to speculate that the consortium could be planning to merge all three companies to create a major UK telecoms and IT company.
The consortium already owns 51.5% of Daisy Group, with Riley holding a 23% share and Toscafund a stake of 28.5%.
In a briefing note Philip Carse, principal analyst at Megabuyte, said: ‘Toscafund has amassed a similar 28.1% holding in Phoenix IT in recent times. Matt Riley has often spoken of his desire to create a substantial mid-market converged telecoms and IT player, and the acquisition of Phoenix would certainly accelerate that process.’
Carse said the deal would see Daisy’s £360m of revenues and its £58m EBITDA run rate boosted by £221m (61%) and £27m (47%) respectively.
He added: ‘Meanwhile, Penta is the backer of privately owned Six Degrees, having sold its previous telecoms venture – SpiriTel – to Daisy in November 2010. The SpiriTel management team has created Six Degrees into a much more data, connectivity and hosting-focused provider than SpiriTel, and would add some strong, complementary capabilities and growth drivers to Daisy.’
Carse said estimated run rate revenues and EBITDA of £70m and £14m would add around 19% and 24% respectively to Daisy.
The move follows rumours earlier this year that a Daisy/Phoenix IT merger was in the offing. Daisy was also in talks with Virgin Media owner Liberty Global but failed to reach agreement. At the time Daisy said it would consider strategic acquisitions as a way forward.
Carse said a Daisy/Phoenix IT merger would be a boost for Phoenix IT, which is suffering from falling revenues. However Carse warned that the deal could pose ‘the mother of all integration challenges.’
Carse said the merger would create a company of similar size to Virgin Media ‘and behind only BT and Vodafone/CWW in the broader-based fixed and mobile UK business comms market.’
Daisy Group has confirmed it is in preliminary talks with the consortium. It has until 10 September to make an offer. The company declined to comment on the possibility of a merger with Phoenix IT and Six Degrees.
Six Degrees also declined to comment, although a source close to the company said there was ‘no chance of any merger’ between the company and Daisy Group.
Phoenix IT was unavailable for comment.