Alternative Networks back on track

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Service provider Alternative Networks this month purchased billing and software provider Aurora Kendrick James for a fee of up to £5.5 million.

At the same time, it signed a three-year fulfilment contract with Vodafone to serve 50 Vodafone business customers.

It reckons the Vodafone deal will generate around £1 million in fees in its first year.

Neither deal is as expansive as past Alternative Networks acquisitions – of reseller ICB for £10 million in 2005 and systems integrator Echo Communications for £14.3 million in 2007.

Neither represents an immediate boon to its portfolio of solutions, nor an immediate growth opportunity to its 4,000-strong customer base. The Aurora purchase essentially protects its existing intellectual property, and the Vodafone fulfilment contract is rare departure.

But, both are part of careful board strategies to ensure Alternative Networks continues its impressive growth beyond 2010, after this year posting its first profit-warning in its 14-year history.

The market expectation for 2008/9 was for the company to show profits of £11 million in the face of recession, up moderately from £10.75 million in the year to September 2008.

But the reduction in customer spend saw the company issue a warning in April and the stock market was guided to a revised forecast EBITDA of around £9 million, 18 per cent down.

Alternative Networks said the first week of October it will hit those numbers.

The Aurora purchase sees Alternative Networks pay £3.75 million in cash and £800,000 in shares initially, with a deferred fee of up to £750,000 cash and £200,000 in shares payable in 12 months and linked to performance over the next 12 months.

The maximum payment will be due if Aurora boosts contracted revenues by 10 per cent in the period, net of any customer losses.

Aurora reported a 16 per cent profit margin last year, on revenue of £3.6 million.

It has worked with Alternative Networks for a decade and the decision to bring its software in-house and to take charge of its own IP will protect, in the first instance, Alternative Network’s intellectual property, having invested £350,000 in the past two years in a bespoke ‘Clarity’ billing platform and customer portal.

The licence Alternative Networks held for the ‘Clarity’ software was to expire in 2010, so the acquisition guarantees it future exclusivity on elements of the platform, essential to its SME proposition.

It claims its billing platform and expenses management portal distinguish it, and are a reason Vodafone granted it the new fulfilment contract.

By buying into Aurora’s expertise, of 25 software engineers and 20 fulfilment agents in Kent, it will improve its ‘Clarity’ customer portal further, it reckons.

Chief executive James Murray says: “It represents a sensible use of cash, increases our commercial opportunities and provides a sound strategic platform from which to gain an increasing share of the market, both organically and through further acquisitions.

“Specifically, exclusive access to the software will facilitate the efficient integration of future acquisitions.”

But Aurora provides billing services to over 50 other UK communications providers, and the transaction means Alternative Networks is serving competitor businesses, including Daisy Communications in the reseller space.

Full article in Mobile News issue 452 (November 16, 2009).

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