2e2 going into administration is bad news for the UK SITS market, particularly for the 2,000 staff at risk of redundancy. It also highlights the risks of the ‘buy to grow’ business model that it had employed.
One issue that has not received much coverage is what will become of 2e2’s contract base. Although 2e2’s administrators (FTI Consulting) are working with clients to ensure ‘service continuity’, there will clearly come a point when service provision by 2e2, at least in its current form, must cease. This is a particular concern for major managed services customers, many of which are health trusts and are reliant on 2e2 in order to provide critical support.
Depending on the manner in which the administrators decide to divide out the remains of the UK business, the company’s demise will lead to 2e2’s competitors picking over the carcass.
Computacenter and SCC, the two giants operating in the UK VAR sector and with strong existing managed services capabilities, will likely be positioning themselves as the ‘logical’ destination for 2e2’s clients. Logicalis and particularly Azzuri Communications will also be well placed given their focus on the ‘C’ part of ICT.
A neater solution, certainly for FTI Consulting as 2e2’s administrator, would be if a buyer could be found. Indeed, FTI has already announced that it has received ‘significant interest’ from channel firms in acquiring at least part of the business.
Daisy Group, a UK-centric provider of communications and networking services, has already been suggested as one interested party. With the provision of telecom services (e.g. mobile phone airtime, fixed line rentals) representing the majority of Daisy Group’s revenue, PAC expects that the ‘O2 Unify’ partnership between O2 and 2e2, offering unified communications services, would be of particular interest.
However, PAC believes that a broader acquisition of 2e2’s UK operations would represent more than Daisy could chew. For starters, 2e2’s UK business alone (£250m in 2011) is nearly as much as Daisy Group’s total revenue (£266m in 2011). Meanwhile, there is not a strong overlap between the two firms operationally. Daisy Group has a particular focus on the SME market with a tight focus on communications services. 2e2 on the other hand has moved up into providing C&SI and infrastructure management services to much larger organisations.
Another firm that PAC envisages could provide a suitable home for 2e2 is networking and data centre VAR Kelway. Kelway is following an aggressive growth strategy, and the collapse of 2e2 in the UK provides it with an opportunity to expand inorganically. Meanwhile, Kelway’s range of capabilities offer a closer match for 2e2’s overall profile. Like Daisy Group, Kelway is largely UK-centric, but with 2011 revenue of £300m is slightly larger. However, as it represents a better ‘operational fit’, PAC views that it is in a stronger position to acquire a broader swathe of 2e2’s total UK business.
Key Players in UK Infrastructure Services Market by 2011 UK Revenue:
- Computacenter – £1.1bn
- SCC – £1bn (est)
- Kelway – £300m
- Phoenix – £265m
- 2e2 – £250m
- Logicalis – £180m
- Getronics – £127m
- Azzurri – £125m
Post by Dominic Trott