Alternative Networks Plc : Acquisition of Intercept IT Limited

9th January 2014

ALTERNATIVE NETWORKS PLC

("ALTERNATIVE" or "THE COMPANY")

ACQUISITION OF INTERCEPT IT LIMITED

Alternative Networks, the business communications service provider, today announces the acquisition of Intercept IT Limited ("Intercept"), an established provider of Hosted Desktop solutions to the SME market, as well as desktop and server virtualisation services to Enterprise business customers running on-premise IT infrastructure.

Highlights:

·     Alternative is acquiring the entire issued share capital of Intercept for £12.95m in cash on completion from the founders.

·     The acquisition is expected to be earnings enhancing in the first 12 months and subsequently.

·     The acquisition of Intercept achieves the following objectives for Alternative:

o  Offering complete cloud based solutions to our SME customer base on a well-established platform. This enables the full outsourcing of customers' IT functions.

o  Broadening Alternative's Managed Service offering to Enterprise customers to include their virtualised IT infrastructure.

·     Intercept recorded £9.8m of revenue in year ended 31 May 2013 and adjusted EBITDA of £0.8m.

·     The two founders of Intercept have resigned board positions. Gary Collins, who has technical responsibilities at Intercept, has confirmed that he will support the Company as a consultant where required.

·     Strong pipeline of business acquired with Intercept. In addition, the level of contracted but unrecognised revenues exceeded £5m.

The customer bases of each of Intercept and Alternative are highly complementary with both businesses providing business-only services into similar verticals. Intercept also has a low capital investment requirement, spending £0.2m in 2013. Alternative intends to migrate Intercept's IT infrastructure in due course to its own datacentres, and increase the capacity of the platform.  The acquisition is expected to result in some cost synergies.

In the financial year ended 31 May 2013 Intercept recorded revenue of £9.8m, a pre-tax loss of £0.3m and an EBITDA loss of £0.1m. Investors should note that following a strategic review Intercept's cost base significantly reduced since May 2013 and adjusting for the costs of this exercise and the efficiency gains, the underlying EBITDA was £0.8m in the year ended 31 May 2013. Intercept has also reduced its one off sales of low margin hardware and software, such that in the six months to 30 November 2013, total revenue was £4.0 million, of which approximately 50% were recurring managed or hosted services and in long term contracts. In the same 6 month period, adjusted EBITDA was £0.5m. Net assets at 31 May 2013 were £0.2 million.

Edward Spurrier, Chief Executive of Alternative Networks, commented:

"Our acquisition strategy remains to deliver earnings enhancing acquisitions that augment the products and services we deliver to our customers. With Intercept's twin offerings we will significantly broaden our range of IT services as well as acquire a well-established platform to deliver additional cloud services.

Intercept has an exceptional pedigree in virtualising IT infrastructures, having virtualised over 5,000 servers and more than 2,000 different applications in 30 languages, realising millions of pounds worth of savings to their customers.

In anticipation of a business sale, the founders developed a young and energetic management team who are well placed to take Intercept to the next level, supported by Alternative.

We are delighted to have completed this acquisition against considerable interest from other parties. The acquisition of Intercept will provide a further stimulus to organic growth across the Group as it presents good cross sell opportunities into our respective customer bases and is a good use of our cash resources."

Enquiries:

Information about Intercept

Based in London, Intercept is one of the UK's leading cloud computing and virtualisation service providers, employing 48 people of whom 22 are qualified technicians.   Since 2002, Intercept has helped organisations of all sizes to reduce costs, improve user performance and increase business agility by delivering applications and desktops from public and private clouds.

Intercept's flagship hosted cloud solution, OnlineDesktop is a selectively sourced Desktop as a Service solution, delivered on a cost-per-user, monthly subscription basis from Intercept's bespoke cloud.

·     OnlineDesktop is used by approximately 100 customers with 1,800 end users.

·     End users per customer range from a single user to 250 seats. The largest customer is the Rowanmoor Group PLC who has recently renewed its contract extending for a further five years.

·     OnlineDesktop provides a premium product, allowing the full out sourcing of customers' IT requirements.

·     Strategic partners include Citrix, Microsoft (Lync), and HP.

On-premise solutions are a separate range of services supplied by Intercept. They are typically sold to a larger customer base which has its own internal IT resources. Intercept is one of only seven Citrix Platinum partners in the UK, and customer solutions typically have Citrix at their heart. Intercept's on-premise customers span a wide breadth of industries, with a particular focus on professional and financial services.  Managed Services are currently provided to around 40 customers. These are becoming increasingly long term in nature with a number of three and five year contracts recently being signed.