It's all go at the mid-market end of the converging IT and communications space with a new player joining the London stock market. AIM-listed cash shell Castle Street Investments (CSI:AIM), the leftovers after the disastrous on-line dating company Cupid fell to bits, is buying Palatine private equity-backed managed services provider Selection Services in a £34.8 million deal.

OK, so far, so ordinary, but what makes this a particularly interesting deal isthe backing of MXC Capital (MXCP:AIM), run by serial buy-and-build entrepreneurs Ian Smith and Tony Weaver. This is the pair behind several successful investment stories over the years, most recently kick-starting the growth spurt at two-time Shares Play of the Week Redcentric (RCN:AIM), and doing a similarly stand-up job at Castleton Technology (CTP:AIM), which is carving itself a neat little niche in the public sector and charities space.


The deal for Selection Services has been struck at around 7.5-times current year EV/EBITDA (enterprise value to earnings before interest, tax, depreciation and amortisation) and the firm's main ambition seems to be to act as (another) consolidator in the mid-market managed services space.

As we recently explained in an in-depth feature, this is a sub-sector niche that has, and continues, to see plenty of change. FinnCap technology analyst Andrew Darley admits that 'when we first considered writing a piece on this topic, it was a much more heavily populated sector.' He reminds us that there has been plenty going on the takeovers front over the past 12 to 18 months or so. 'We've seen a failed bid for Iomart (IOM:AIM), and we’ve waved goodbye to listings for Daisy, Accumuli, Advanced Computer Software, Phoenix and, most recently, COLT.'


Alternative Networks (AN.:AIM) is another name readers may be familiar with, less so the less successful Coms (COMS:AIM), which itself has been trying to fire its own buy-and-build ambitions. How Selection Services does from here we will be interested to see, and we'll be watching closely but it strikes us as significant that the first thing Smith and Weaver have implemented is a change at the top, replacing previous CEO Grahame Harrington with Andy Ross, the former managing director of Northgate Managed Services. One to watch.

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Issue Date: 04 Jan 2016