Europe: K3 Makes Managed Services Acquisition

Europe: K3 Makes Managed Services Acquisition

Managed services mergers and acquisitions had been a U.S. trend for most of 2010. But more recently it seems like MSPs are buying up one another in Europe and Australia. The latest example involves K3 Business Technology Group buying Panacea (a managed services and IT solutions provider) for £1.7m and the repayment of its £0.5m overdraft. The deal will more than double K3's managed services revenues. Here are some details and observations.

K3 Business Technology Group (K3BTG), based in the United Kingdom, is a Microsoft channel partner that specializes in supply chain management solutions for retail, manufacturing and distribution. Meanwhile, Panacea, based in Hampshire, provides managed services and IT solutions to the distribution, retail and hospitality sectors.

According to a press release about the deal, "K3 management views the acquisition as a material development in the growth of its managed services and hosting activities." The statement added:

"For the year to 31 December 2008, Panacea generated sales of £9.58 million and an underlying operating profit of £0.57 million. Some 47% of annual revenues are recurring and for 2008 totalled £4.5 million, from a customer base of approximately 260, including many well known high street retailers. Panacea's managed services activities account for approximately half its revenues, with the balance largely derived from its Applications Solutions & CRM Division built around Microsoft Dynamics and Sage.

Combined K3 and Panacea revenue will total c.£7 million per annum and K3 management also sees the opportunity to offer K3's hosting services to Panacea's 260 strong customer base."
Anybody got a calculator handy? Based on the published info above you can calculate the multiple K3 paid for Panacea. I'd do it myself but I'm running off to a FastChat meeting.

Before I go it's important to remember to keep the M&A activity in perspective. In the US, many (but certainly not all) recent deals involved distressed companies or very small shops that couldn't grow on their own. Yes, there are plenty of M&A deals that make strategic sense but I suspect a large number of deals don't involve much cash up front...

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