GrowthBusiness catches up with Six Degrees founder and serial entrepreneur Alastair Mills to find out how his business has been bedding in its numerous acquisitions and what its latest purchase adds to the company.
With the purchase of colocation business BIS, Six Degrees Group has now closed thirteen acquisitions in 18 months. We sit down with founder and CEO Alastair Mills to discover how business growth is going.
How have the acquisition integrations been going?
‘It’s been going well. We haven’t done a deal since August, so the business has had a good seven months of continuing the process. We track our integration very carefully and are now 91 per cent integrated on our first 12 acquisitions. So it has been good progress.’
Has it been a deliberate decision to take a step back from active dealmaking?
‘Yes, I think that is fair to say. We raised an initial £60 million of equity capital, plus a £25 million bank facility, and we knew the size and scale of platform we wanted to build.
‘Because of that we had a fairly frenetic period of building that platform across various products including hosting, data connectivity and voice and we got most of that in place by August. I guess one of the key strategic objectives for us was to have a geographically diverse data centre, with that geography being in London. And there aren’t that many assets like that around, so this new deal was the final piece of the puzzle.’
Was this acquisition something you went out to find specifically?
‘It was, yes. As I said, the objective was for us to have a second fully-controlled data centre. I won’t go into too much detail, but all sorts of companies say that they have data centres, but what they actually have is a few racks in someone else’s centre.
‘What is important for us is to have our own proprietary data centre which is controlled from the front gate, all the way through security, through plants and machinery, all the way to the racks.
‘Having that gate-to-rack control is important and we wanted to find another facility which was geographically diverse from Birmingham and ideally in London, which still remains the digital capital of Europe. So yes, it was a specific type and profile of asset we were looking for.
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Is this it for dealmaking in terms of what you need?
‘Certainly in terms of product to portfolio and scale we have got to where we want to be. We do still have further capital available to us through our recent banking facility to do more acquisitions, but those will be far fewer and further between from now on.’
Over period that you’ve been making acquisitions with Six Degrees have you noticed any changes in how the market is performing and how easy it is to get deals away?
‘Deals seem to take more time and raising money can take longer. We have increased our facility – we had Clydesdale and we’ve now brought HSBC into a club banking facility. That is a lengthy, pretty intense progress so deals can take a long time.
‘However, I would add that for the right sort of business which can display what I think are three key criteria, deals are possible. The first one is displaying genuine organic growth. Secondly, you need to be able to turn your profits into cash – as at the end of the day, companies don’t go under as they run out of profit, it is because they don’t have cash. We convert all our EBITDA into cash.
‘Thirdly, you need to have a high proportion of contracted revenues. This is where we are different from other companies which have struggled, in that 90 per cent of our revenues are in contract. So we are selling them as a service.
‘If you have those three criteria then I am very bullish about the prospect of being able to raise capital both equity and debt, despite a pretty challenging backdrop.’
This is the thirteenth acquisition, how does it set up the business going forward?
‘This transaction takes us up to revenue run rate of about £70 million, making almost £15 million of profit.
‘We are making significant investment in the company. We just spent £4 million on upgrading our core network and infrastructure. Also, significantly, during the last 12 months we have recruited an incremental 80 people.
‘We had to hire someone last year just to hire people. So beyond the acquisitions we have done we’ve put 80 new heads into the business which is a sign of our confidence in the business, and also to our commitment to growing organically.’