- The data centers and hosting sector demonstrated largely positive results in Q1 2013, with robust levels of investment in new capacity and M&A despite economic uncertainty. - Many public companies in the sector continued to show solid double-digit organic revenue growth and good profitability in Q4 2012 and Q1 2013, though some like Rackspace saw share price declines. - Private companies in the sector also replicated these dynamics, with some wholesale data center providers and colocation/hosting providers registering strong revenue growth, though also requiring significant investment that reduced margins.

1. this quarter: an exclusive feature
on the data centres & hosting sector
aqu
arterly summary of corporate deal activity in the techno
logysec
tor
techtalk
q2: 2013

3. tech talk | q2 2013 1
In wake of the recent announcement that the
UK economy has demonstrated flat growth
over the first quarter of 2013 it is encouraging
to see the data centres and hosting sector
demonstrating largely positive results.
With uncertainty in the economy still a
prevalent theme, we should view the robust
levels of investment in new capacity and M&A
as a good sign of things to come.
2012 produced good figures for new space
demand despite the significant increase in
new capacity slightly taking the edge off of
the results. Unfortunately the net effect of
growing faster than demand meant vacancy
rates increased 2.6% year-on-year at the end
of Q4 2012.
The BDO view
From a corporate deals perspective we
witnessed steady deal flow over Q1 with 42
deals in total and 26 of these being strategic.
With increasing confidence demonstrated in
the market place, 2013 may be the year for
an improved IPO market with institutions
warming to certain aspects of the sector.
PE deals ground to a halt towards the end of
2012 so the four deals in the Q1 2013 may be
an indication of things picking up.
With the triple dip of the UK economy avoided
and a slow return of confidence we could be
forgiven for being confident of good results in
2013. Recent share price performance for UK
listed technology stocks has been strong, and
we wait to see whether returns to investors
continue to outperform the market.
Julian Frost
Head of TMT at BDO

4. q2 2013 | tech talk2
This last quarter has been broadly positive for
the Data Centre & Hosting sector, with results
from most of the public companies continuing
to show solid double-digit organic revenue
growth and good profitability and cash flow
along with guidance for more of the same in
2013. Most of the data centre companies are
investing more than EBITDA in new capacity
and M&A, especially in Europe, but 2012
is likely to mark the period of peak capacity
expansion, with improving FCF expected in
2013.
Poor share price performances from Digital
Realty (DRT), Dupont Fabros (DFT) and
Rackspace has meant that the DCH share
price index, up 24% over 12 months, is for
once lagging the Megabuyte ICT Services
index, up 54%, though is still way ahead of
the FTSE and NASDAQ.
We view Rackspace’s one month, post results
27% share price fall as a correction rather than
a vote of no-confidence in hosting/Cloud,
merely taking Rackspace’s valuation back to
the peer group’s tight range of 12-14x forward
looking EBITDA.
Sector focus: Data centres & Hosting
M&A continues unabated after November’s
Claranet/Star deal, with Pulsant buying
ScoLocate and Peer1 being taken private
by local Canadian cable company Cogeco,
with double-digit valuations highlighting the
scarcity of good quality, large targets.
January 2013 saw the IPO of CyrusOne, a
US wholesale data centre provider, which
is majority owned by Cincinnati Bell; this
will replace the departing Peer1 in the next
quarterly review.
Share prices & valuations
The last quarter has seen a polarisation in
share price performance between the major
US wholesale data centre players DRT and
DFT, who have suffered on pricing concerns,
and the carrier rich colocation providers
Equinix, Interxion and Telecity, who continue
to generate double digit revenue and EBITDA
growth and give a positive outlook for 2013.
The best performer has been Peer1, following
an agreed bid from local Canadian cable
company Cogeco in December 2012.
Meanwhile, the worst performer has been
Rackspace, with the shares down sharply in
the last month. The company had reported
solid Q4 results, but saw an increase in churn
and guided for flat rather than rising EBITDA
margins for 2013.

5. tech talk | q2 2013 3
Figure 1: Data Centre & Hosting Services share price performance
Source: Megabuyte, Capital IQ
Share
price
Mkt Cap
(m)
iomart £ 2.3 242.5
Coresite $ 35.2 724.6
Telecity £ 9.1 1,828.6
DFT $ 25.1 1,584.3
Interxion $ 23.6 1,611.7
Peer1 C$ 3.8 492.2
DRT $ 70.2 8,661.2
Equinix $ 209.6 10,230.7
Rackspace $ 47.0 6,483.6 1 month
3 months
12 months
Return
40% 0% 40% 80% 100%60%20%20% 10% 10%

6. q2 2013 | tech talk4
The poor share price performances of DRT,
DFT and Rackspace has had a marked effect
on the peer group share index, causing it to
underperform against both the Megabuyte
ICT and All Share indices, with a one year rise
of 24% versus as much as 54% for the ICT
Services index.
Despite this underperformance against its
TMT peers, the DCH index has still done better
than the FTSE All Share or NASDAQ over the
last 12 months, which have risen by 9.6% and
6.5% respectively.
DCH Index
MBTW All Share
FTSE All Share
NASDAQ
ICT Services
1,200
1,400
1,600
1,800
2,000
2,200
Figure 2: Data Centre & Hosting Services peer group performance
Source: Megabuyte, Capital IQ N.B. DCH Index includes: Coresite, Digital Realty Trust, Dupont Fabros Technology,
Equinix, Interxion, Iomart, Peer1, Rackspace, Telecity
Sector focus: Data centres & Hosting

7. DCH PE
DCH EV/EBITDA
EV/EBITDA
PE
EV/EBITDA(previousquarter)
PE(previousquarter)
tech talk | q2 2013 5
0
10
DRT Telecity Equinix RackspaceIomart DFT Coresite Interxion
20
30
40
50
5
15
25
35
45
Figure 3: Data Centre & Hosting Services currentyear valuation
Source: Megabuyte. Capital IQ N.B. PE and EV/EBITDA are next twelve months consensus estimates, PE multiple
range limited to 50x earnings.
currentyearvaluationmultiples
The broad share price out-performance of the
group in recent years has resulted in premium
valuations, with all of the companies trading
at low to mid teens forward looking EBITDA
multiples, despite the very different business
models of the constituent wholesale data
centre and retail colocation and managed
hosting companies.
It is interesting to note that the recent share
price decline of Rackspace has merely taken its
multiple back in line with its peers, suggesting
more of a share price correction than a vote of
no confidence in hosting.

8. q2 2013 | tech talk6
Notwithstanding Rackspace’s results, share
price weakness, recent Q4 and full year 2012
results have re-affirmed the broad sector’s
attractive financial characteristics, with
strong growth, high profitability margins and
excellent cash conversion. However, growth is
also requiring substantial investment in data
centre capacity by the wholesale and retail
colocation providers and, to a lesser degree, in
customer equipment by the managed hosting
companies.
Broadly speaking, all of the companies
are achieving solid mid teens organic
revenue growth rates, with the exception of
Rackspace’s chart-beating 25%.
The growth rates for Iomart (for 1H12/13)
include contributions from Titan Internet and
EQSN; for DRT (Q4 12) from Sentrum; for
Equinix (Q4 12) from Ancotel and AsiaTone;
for Telecity (2H 12) from UK Grid and Data
Electronics Group; and for Peer1 (Q1 12/13)
from NetBenefit. In contrast, Interxion’s 13%
is entirely organic growth.
With the exception of the two major US
wholesale providers DRT and DFT, EBITDA
growth has out-paced revenue growth,
with increased data centre utilisation and
economies of scale leading to improving
margins.
Fig 4: Revenue Growth – last period Fig 7: OCF Conversion- last period
Sector focus: Data centres & Hosting
The actual margins achieved highlight the
very different business models and capital
intensity of the companies in the peer group;
the wholesale data centre providers are
generating the highest margins, at c60%,
followed by the 40s of the carrier rich
colocation providers, whilst the managed
hosting providers are typically in the 30s.
Allied with good EBITDA margins is operating
cash conversion, typically of 80-100% of
EBITDA, reflecting both the ‘true’ nature of
revenues and the positive working capital
dynamics from many data centre and hosting
customers paying upfront.
yoygrowth
OCC
Source: Megabuyte, Company Accounts Source: Megabuyte, Company Accounts
Coresite
Coresite
DRT
DRT
DFT
DFT
Equinix
Equinix
Interxion
Interxion
Iomart
Iomart
Peer1
Peer1
Rackspace
Rackspace
Telecity
Telecity
20%
86%29% 91%
16%
58%20%
87%
13%
105%
29% 84%
25%
56%
25%
93%
14%
104%
Fig 6: EBTIDA Margin – last period
margin%
Source: Megabuyte, Company Accounts
Coresite
DRT
DFT
Equinix
Interxion
Iomart
Peer1
Rackspace
Telecity
44%
58% 60%
47%
43% 38%
27%
37%
47%
Fig 5: Adj. EBITDA Growth- last period
yoygrowth
Source: Megabuyte, Company Accounts
Coresite
DRT
DFT
Equinix
Interxion
Iomart
Peer1
Rackspace
Telecity
38%
25%
7%
24%
15%
51%
37%
27%
18%

9. tech talk | q2 2013 7
Fig 11: Revenue Growth – last period
Fig 10: Capex, M&A to Sales – 12mnth
The relatively capital intensive nature of
data centre operators is highlighted in capex
and FCF metrics, with most of the major
wholesale data centre and retail colocation
providers currently spending 50-60% of
revenues on capex, topped by Telecity at 58%
in 2H12. Broadly speaking, maintenance capex
represents c5% of revenues for data centre
operators, with c2% on customer equipment,
with the remainder being growth capex (new/
expanded data centres).
The situation is rather different for the more
hosting focussed companies, with Rackspace
and Iomart spending c10% of revenues. For
such providers, the bulk of capex tends to
be on customer equipment in data centres,
driven by rather than being ahead of customer
demand.
Source: Megabuyte, Company Accounts
Source: Megabuyte, Company Accounts
Capex / Revenue
M&A / Revenue
Coresite
Coresite
DRT
DRT
DFT
DFT
Equinix
Equinix
Interxion
Interxion
Iomart
Iomart
Peer1
Peer1
Rackspace
Rackspace
Telecity
Telecity
-4%
43%
-124%
183%
28%
32%
-11%
58%
-23%
64%
-2%
39%
-34%
60%
7%
26%
-25%
72%
Fig 8: Capex to Sales % - last period
Source: Megabuyte, Company Accounts
Coresite
DRT
DFT
Equinix
Interxion
Iomart
Peer1
Rackspace
Telecity
Average
39%
103%
2%
50% 53%
10%
36%
12%
40%
58%
Fig 9: FCF to Sales % - last period
Source: Megabuyte, Company Accounts
Coresite
DRT
DFT
Equinix
Interxion
Iomart
Peer1
Rackspace
Telecity
4%
-45%
58%
-3% -10%
28%
-8%
25%
-11%
M&A has also been a key feature, as shown
in the second set of cash flow charts for the
last reported 12 months. The nine companies
have generated $6bn in revenues and $2.8bn
in EBITDA, but have spent $2.6bn on capex
and $2bn on M&A. Most of the M&A bill
was counted for by DRT ($1.55bn, including
Sentrum properties) and Equinix ($0.33bn on
AsiaTone andAncotel), with Peer1 andTelecity
both pitching in with c$40m spending.
The net effect is that all of the peer group,
with the exception of Rackspace, have spent
more than EBITDA in the last year on capex
and/or M&A. Note, however, that this gives
a distorted view of data centre returns given
that much of this spending is to facilitate
future growth.
With 2012 possibly representing a year of
peak capacity expansion, operator guidance
suggests a better FCF profile for 2013; for
example both Interxion and Telecity expect to
spend less than EBITDA.
As an indication of overall returns, Interxion
and Telecity report returns on capital
employed of 13% and 16%, whilst Equinix
report 34% cash flow annual returns on an
established data centre.

10. q2 2013 | tech talk8
Sector focus: Data centres & Hosting
Figure 12: Data Centre & Hosting Services Private company financial performance
Source: Megabuyte, Company announcements. Growth capped at 100%
Annual
Revenue
(£m)
Annual
EBITDA
(£m)
Ark Continuity Ltd 4.8 -4.5
Control Circle Ltd 20.9 1.0
Gyron Internet Ltd 8.7 2.4
UKFast.net Ltd 16.0 5.0
Infinity SDC Ltd 3.6 -7.0
Node4 Ltd 11.1 2.0
Onyx Group 14.9 1.6
UK2 Group 28.6 5.3
Bunker Secure Hosting 7.4 1.7
Host Europe Group 72.8 27.4
Pulsant Ltd 26.7 8.7
Telehouse Europe 90.0 44.1
1&1 Internet Ltd 36.6 4.9
Fasthost Internet Ltd 36.2 13.1
Star Technology Svs 45.9 4.2
BIS Ltd 16.2 2.4
Adapt Group 31.8 3.0
Attenda Ltd 28.2 5.9
Claranet Group Ltd 59.6 6.2
-50% 50% 100%0%
EBITDA margin
EBITDA growth
Revenue growth

11. tech talk | q2 2013 9
Results from private companies in the data
centre and hosting peer group broadly
replicate the dynamics of the public
companies, albeit that the UK private
companies tend to be smaller and therefore
at a different stage of development. In
terms of recently released accounts,
wholesale data centre providers Ark
Continuity and Infinity both show
some of the highest growth
rates, albeit off small revenues,
and coming after significant
investment (c£76m and
£150m respectively).
In the case of Infinity, data
centre halls opened since
March 2012 (for example for
CWW) suggest that FY12/13
revenues could be up to 4x
FY11/12’s £3.6m.
Among other companies
recently reporting, colocation
and hosting provider Node4 and
managed hosting specialist Control
Circle both registered strong growth of
27% and 51% respectively.
Control Circle registered a significant growth
in EBITDA, after a slightly disappointing prior
year, albeit that the margin is still only at 5%.
Node4 experienced a slight dip in EBITDA
margins from investing in growth, but
expects a rebound in margins and
continued 20%+ revenue growth
this year, alongside reduced capex
requirements.
Meanwhile, Claranet reported
1% revenue growth and an
11% EBITDA decline in the
year to June 2012 (for the
UK, Germany, France and
Spain), reflecting pressures
on its networks business
outweighing hosting growth;
it has subsequently acquired
Star Technology and Typhon,
taking total Group revenues
from £70m to £124m.

12. q2 2013 | tech talk10
The data centre and hosting peer group
continues to be a focus for M&A, with several
recurrent themes. Consolidation has been
a key feature, driven both by private equity
backed buy and builds (eg Pulsant, Six Degrees
Group and Adapt Group) as well as other
players such as Iomart.
The most noteworthy recent deal was
Claranet’s £55m acquisition of Star
Technology in November 2012, representing
meaningful consolidation of UK mid-market
focussed networks and hosting players (with
£37m and £46m UK revenues respectively).
Claranet also boosted its French business
with the smaller £3.4m Typhon acquisition.
Claranet received subordinated debt funding
from US private equity house Abry Partners
for the Star deal.
Meanwhile, Pulsant returned to its Scottish
(Lumison) roots in December 2012, buying
data centre colocation and peering provider
Scolocate for £26m.
Sector focus: Data centres & Hosting
The Claranet/Star 8x post synergy EBITDA
and the Pulsant/Scolocate 10x historic
EBITDA were both at the top end of the range
of similar UK deals, and highlight the relative
scarcity of good quality, reasonably large
targets.
Canadian-based hosting provider Peer1 was
subject to an agreed bid from local cable TV
company Cogeco for $635m enterprise value,
or14.4xannualisedEBITDAinDecember2012,
with the bid now declared unconditional.
This came just six months after buying the
UK-based Netbenefit from GroupNBT for
£25m, or 10x EBITDA. It remains to be seen
whether Peer1 will maintain its UK presence,
or focus just on North America, under its new
ownership.
January 2013 saw the IPO of CyrusOne, a
US wholesale data centre provider, which is
majority owned by Cincinnati Bell.

13. tech talk | q2 2013 11
Table 1: Selected Data Centre & Hosting M&A Deals
Source: Megabuyte, Company announcements
Acquirer Date Target Activity Initial price Est. multiple
Iomart 11.11 EQSN Managed hosting £2.5m 9x EBITDA
Host Europe 1.12 Red Coruna Hosting (spain)
Six Degrees Group 2.12 Ultraspeed Managed hosting £1.5m
Adapt Group 4.12 eLINIA Managed services £13m 15x EBITDA
Six Degrees Group 5.12 Firstserv Managed Hosting
Six Degrees Group 5.12 Serverstream Managed Hosting
Six Degrees Group 5.12 Datahop Datacentre interconnect.
Equinix 5.12 AsiaTone Data centres (Asia) $230.5m 7.7x sales
Equinix 5.12 Ancotel Data centres (Germany) $85.7m 4x sales
Host Europe 5.12 Mesh Digital Domain names
NTT Comms 6.12 Gyron (85%) Date centres £40m(e) 21.7x EBITDA
PEER1 6.12 NetBenefit Managed hosting £25m 10.0x EBITDA
Digital Realty Trust 6.12 Sentrum (3 DCs) Data centres £716m
Telecity 7.12 Tenue Data centres (Finland) £3.7m
Six Degrees Group 7.12 Cloud Computing Centre Managed Hosting & cloud
Iomart 7.12 Skymarket Limited Web hosting £1.2m 1.2x sales
Colt 8.12 Fidelity Telecom Ltd Cloud-based solutions
Iomart 8.12 Melbourne Server Hosting Managed Hosting £7.0m 11.1x EBITDA
365Main 9.12 Equinix (16 US centres) Data centres $75.0m 2x sales
Iomart 10.12 Internet Engineering Web solutions £1.2m
Telecity 11.12 Academica Data centres £22.4m
Claranet 11.12 Star Managed Services £55m 13.1x EBITDA
Claranet 12.12 Typhon Hosting services £3.4m
Pulsant 12.12 ScoLocate Colocation provider £26m 9.6x EBITDA
Cogeco Cable 1.13 Peer1 Managed hosting $635m 14.4x EBITDA

14. q2 2013 | tech talk12
CBRE: Q4 rescues 2012 for demand in
year of big colo supply growth
The latest CBRE European data centre
quarterly paints a mixed picture; 2012
ended on a relative high in terms of new
demand, thus rescuing 2012 overall demand
growth; but 2012 also saw significant new
capacity. The focus on square metres also
understates demand and supply dynamics
given improvements in power supply per unit
of space.
According to CBRE data, Q4 2012 was better
for colocation demand across the major
European markets, with new demand of
16,955 square metres (sqm) representing 38%
of the full year new demand of 44,980 sqm
and being 3xQ3 new demand of 5,340sqm;
this takes total EuropeanTier1 colo demand to
551,000sqm.
With this late demand spurt, 2012 has marked
the fourth year of 40–50,000sqm of new colo
demand, down on the c70,000sqm in 2007
and 2008, but still representing steady 7%
volume growth.
Whilst 2012 demand growth turned out to be
in line with recent years, 2012 saw significant
data centre expansion. Total colo stock
increased by 12.4% to 78,000sqm whilst
supply increased 10.7% to 649,000sqm, more
than double the 2011 increase.
The major European Tier 1 players - Equinix,
Interxion and Telecity – all did their bit, with
Interxion for example increasing revenue
generating space by 19%. The net effect of
faster supply than demand growth was an
increase in the vacancy rate from 12.4% at Q4
2011 to 15.0% at Q4 2012.
CBRE noted strong demand in Amsterdam.
Meanwhile, London supply increased in line
with the European average, at 10.9% to
276,000sqm (43% of the European total),
whilst incremental colo demand for 2012, at
14,900sqm, was up 22% on 2011.
Sector focus: Data centres & Hosting
Fig 13: Data centre space - Europe
Fig 15: Data centre space - London
Fig 14: Data centre space - Europe
Fig 16: Colocation take up - London
m2(‘000)
m2(‘000)
MW
m2(‘000)
Source: CBRE
Source: CBRE
Source: CBRE
Source: CBRE
2007
2007
2007
2007
0
0
0
0
200
200
10
400
100
400
20
600
200
600
800
300
800
30
2008
2008
2008
20082009
2009
2009
20092010
2010
2010
20102011
2011
2011
20112012
2012
2012
2012
supply
stock
supply
Take upavailability
availability
availability
5 yr average

15. tech talk | q2 2013 13
CBRE noted that take up of wholesale space in
London was double that of 2011; perhaps
not surprising given major projects
coming on stream from companies
such as Infinity. Nevertheless, the
London vacancy rate increased
3.2pp to 18.6% over the
course of the year.
CBRE expects supply to
continue to increase, but
at a slower pace than
in 2012. It noted that
26,000sqm is currently
in the pipeline (versus
the 63,000sqm for 2012).
This is also reflected in
lower capex guidance and
improving cash flow again
evident from the three big
quoted players; for example
Interxion is guiding 2013 capex
of €130-150m versus €178m for
2012.
One interesting figure that comes out of the
stats, but which isn’t given any prominence,
is the improvement in power supply per
square metre. Whilst supply in space
terms increased nearly 11%, power
supply in MW terms increased
20% to 636MW, with the implied
power per space unit increasing
9% in the year. In other words,
both the supply and demand
growth figures
in pure space terms are
under-stating growth
in revenue generation
capabilities, given the
ability to squeeze yet more
processing power into a given
unit of space.

16. q2 2013 | tech talk14
Our take
Whilst it is encouraging to see 2012 end
on a good note, and rescuing 2012 overall
in terms of demand, the CBRE figures are a
stark illustration of the significant capacity
expansion that occurred during 2012. Put
simply, decisions were made on capex for new
facilities at a time of probably slightly better
economic visibility than now, and 2012 may
well go down as the year of peak capacity
growth.
This is not all doom and gloom however,
particularly for the major European players
in prime locations and with the cash flow to
continue investing and buying capacity and
for the smaller, UK-based players with good
facilities, locations and business offerings.
As we noted recently, SSE Telecoms is seeing
colo prices hold steady, despite the growth
in South East England colo capacity, whilst
Interxion reported underlying growth of 3% in
revenues per square metre for 2012.
Sector focus: Data centres & Hosting
Broadly speaking, even at steady prices
and with year on year volume growth, colo
suppliers should be able to grow margins from
improving data centre utilisation and yield
management, whilst the better funded players
can also buy growth through M&A and/or
investment in data centre capacity expansion.
The ongoing shift from on-premise to off-
premise is likely to continue, driving what
could perhaps be described as ‘suburban’ colo,
whilst the inexorable global growth of mobile
and increasing penetration of the web into
the home will fuel internet traffic volumes,
keeping the city centre, carrier neutral
operators busy for years to come.”.
Add in strong growth in managed and Cloud
hosting, and demand for data centre space
is not going to die anytime soon, though
operators in the wrong location, or with
ageing, under-invested properties and/or a
lack of track record might struggle relative to
others.

17. tech talk | q2 2013 15
0
40
2002 2004 2006 2008 20102003 2005 2007 2009 2011 2012
80
120
140
20
60
100
Figure 17: Colocation Annual Availability and New Demand - Europe
Source: CBRE
m2(‘000)
Colocation availability Colocation take-up

18. q2 2013 | tech talk16
Following what was a subdued end to the
year for corporate activity, the first quarter
of 2013 saw a steady flow of deals across the
technology sector. In total, there were 42
deals, with the majority of these (26) of the
strategic M&A flavour while transaction value
totalled £10.8bn, the majority of which came
from Liberty Global’s agreed bid for Virgin
Media (£9.6bn), the largest deal across our
universe this quarter. Private equity activity
picked up from a standing start with four
secondarybuyoutdeals(totalvalueof£332m),
alongside three secondary fundraising events,
raising £474m. Meanwhile, although we still
await IPO activity to resume, capital market
fundraising remained active with a total of
nine fundraising events, totalling £78m.
Sector focused M&A
In a continuation of the theme, strategic M&A
continues to be predominantly sectorfocused,
with the enterprise software space and
Telecoms & Networks peer group a hot bedfor
activity. There were seven related Accounting
& Enterprise Software deals, the most
significant of which was Advanced Computer
Software’s £110m acquisition of Computer
Software Holdings. Meanwhile, amongst
the Telecoms players, Daisy purchased The
Net Crowd and also significantly expanded
its M&A firepower with an extension to its
banking facility at £200m.
PE backed deals valued at £332m, alongside
three follow-on fundraising events totalling
£474m.
However, despite the apparent slowdown in
the level of activity towards the end of last
year, there remains a significant interest in
the technology sector in the UK, and as well
as new Private Equity houses entering the fray,
interest from US players remains evident.
Sector focus: Corporate Deals Review
Private Equity activity and IPO
market to re-emerge in 2013?
While the wait for another IPO in the
sector continues, there are green shoots of
optimism that the IPO market could make
a return this year. Institutions have warmed
favourably to certain aspects of the sector as
of late, particular around mobile money and
enterprise software, bringing hope of more
IPOs on the London market.
Likewise, as private equity houses sit on cash,
interest in the sector continues to pick up
and, alongside new PE firms entering the fray,
overseas interest remains apparent.
Whither 2e2?
The shock news of this quarter was the
downfall of 2e2 Group, with excess levels of
debt proving too much for the company.
Whilst administrators did their best to recuse
some of its assets, with Oakley Capital/Daisy
(two data centres) and Datatec (European
assets) stepping in, much of the UK business
was closed, with several hundred job losses. A
sad moment for the sector.
Private Equity activity picks up
Following a complete dearth of private equity
(PE) deals in the latter half of 2012, PE activity
within the technology sector began to pick up
in the first quarter 2013, with a total of four
Fig 18: Deals tracker – value
Fig 19: Deals tracker – volume
£(bn)
Source: CBRE
Q1 12
0
4
8
12
Q2 12 Q3 12 Q4 12 Q1 13
£(bn)
Source: CBRE
Q1 12
0
20
60
40
80
Q2 12 Q3 12 Q4 12 Q1 13
M&A
M&A
PE
PE
Fundraising
Fundraising

19. tech talk | q2 2013 17
On this point, Boston based PE house ABRY
partners followed up its recent hosting related
deals with Claranet (minority investment
to fund Star acquisition) and its purchase of
Nordic managed services player Basefarm,
with the secondary buyout of Thomsons
Online Benefits, valuing the company at just
under £100m, as Thomsons looks to double
in size by the end of 2015. Likewise, low cost
mobile international call service provider
Truphone also received investment from
abroad, with a £70m investment from Roman
Abramovich’s investment vehicle Minden,
valuing the company at £300m, aiding its
international expansion.
Meanwhile, Wireless Infrastructure Group
changed private equity owners, with US
pension fund backed Wood Creek Capital
Management stepping in, valuing the
company at approximately £150m, or 8.2x
revenues. Fellow peer Arqiva also received
funding this quarter, as it raised £400m
from its shareholders as part of its debt
refinancing financing process, with bank
debt at £3.3bn as of June 2012. Elsewhere,
business management software provider
Sage continued its divestment of non-core
assets with Accell-KKR buying Sage Nonprofit
Solutionsfor £58.4m, while Sage also received
a binding offer from Argos Soditic for the sale
of four product suites in Europe (C&I, ATL,
Automotive and Aytos) for a total of £28.6m.
0
2
Sep 11 Apr 12 Oct 12Dec 11 Jul 12 Jan 13 May 13
4
8.5
1
3
Figure 20: Private Equity activity
Source: Megabuyte
ESWC Aquisitions
- Prologic (1.8x EV/EBITDA)
August Equity
- Secure Data (10.4x EV/EBITDA)
ABRY Partners
- Thomsons Online Benefits
(2.9x EV/Rev)
Francisco Partners
- Kewill (7.8x EV/EBITDA)
Wood Creek Capital
- WIG (8.2x EV/Rev)
Bowmark
Capital
- CSL DualCom
(9.7x EV/EBITDA)
LDC - Workplace Systems
(4.2x Rev)
Mobius Equity Partners
- Tessella (1.0x EV/Rev)
Vista Equity Partners
- Misys (12.1x EV/EBITDA)
BDC - BigHand
(9.2x EV/EBITDA)
trailingEV/Revenue
MBO SBO P2P
size of bubble = transaction value

20. q2 2013 | tech talk18
Alongside the renewed private equity interest,
it is likely that we will see an increased level
of exit activity this year, as many PE firms are
entering a stage in their investment cycles
where we would naturally expect to see some
form of liquidity event.
This was recently demonstrated by KKR,
which is in full exit mode on Northgate
Information Solutions, having already sold
Northgate Managed Services to Capita, and
has begun formal sale process of Northgate
Public Services. And this comes at the same
time as 3i seeks an exit of Civica.
Other exits of note are LMS Capital’s wind
down of Apogee though, at present, it is in no
immediate rush to exit Updata Infrastructure
and August Equity backed SaaS vendor
4Projects was purchased by US Software
supplier Viewpoint Construction Software.
Sector focus: Corporate Deals Review
A Steady flow of M&A
There was a continued steady flow of M&A
deals this quarter, 26 in total, with a total
enterprise value of £15.2bn, though the
majority of this comprises of Liberty’s agreed
bid for Virgin (£14.9bn), excluding which,
deal value totalled approximately £350m.
Moreover, at the beginning of second quarter,
activity continues to pick up, with Cisco’s
agreed bid for Ubiquisys at £205m, whilst
there were also deals for Six Degrees and The
Innovation Group amongst others.
The major acquisition this quarter came from
John Malone’s Liberty Global, which agreed
a $48.87 per share bid for Virgin Median
valuing the company at £14.9bn. While the
transaction will put Malone against rival
BSkyB and Rupert Murdoch, we see little
strategic rationale for the deal given the lack
of potential synergies available from cross-
border cable businesses, though Liberty will
be able to tap Virgin’s strong cash flow and its
reputable management team.
Enterprise software continues to act as a
hub of activity, with a total of seven deals
completed in the peer group this quarter,
including deals from serial acquirers Advanced
Computer Software (Computer Software
Holdings for £110m in cash), and Access
Technology (Sazneo).
Further to this, Kofax acquired Altosoft for
$13.5m, whilst Sage sold Sage ACT! and
Sage SalesLogix to Swiftpage, in a deal worth
£6.4m.
Other deals included Big Hand’s purchase of
Verdatum, and SDL’s acquisition of Bemoko.
Furthermore, although not directly linked with
the peer group, Capita acquired Northgate
Managed Services in a deal worth £65m;
with a 4x EBITDA valuation attached to the
deal, we feel this rightly reflects that much of
the business is made of traditional managed
services; a part of the market experiencing
structural pressure on margins.
Continuing with the sector theme, there were
a number of deals in theTelecoms & Networks
peer group as, alongside the Liberty-Virgin
Media deal, Daisy purchased The Net Crowd,
and has also substantially increased its
banking facilities to £200m in order to fund its
acquisition trail.
Meanwhile, XLN Telecom acquired Shine
Telecom, Solar Communications bolted-on
Armstrong whilst in early second quarter
activity, Six Degrees purchased BIS ltd, its
13th acquisition to date.

21. tech talk | q2 2013 19
With the shocking news this quarter being the
demise of 2e2, it was left to the administrators
to do their best to salvage some value out of
the business. As a result, two data centres and
customers were sold to Oakley Capital Private
Equity for £2.8m, and were subsequently
sold to Daisy for £7.5m in early Q2 activity,
delivering revenue and EBITDA of circa £10m
and £0.75m this year respectively.
Meanwhile 2e2’s European assets were
acquired by Datatec through its Logicalis
subsidiary for $31m. Furthermore, although
some of the smaller parts of the UK business
were acquired, sadly much of the business was
closed down, with the loss of several hundred
jobs.
Away from 2e2 and there were a number of
other deals of note this quarter, Ffastfill fell to
a bid from Ion Trading valuing the company at
£106.1m, or 16.5x current year EBITDA.
Meanwhile, Kelway added yet more hardware
to its business through its deal for Equanet,
Accumuli secured a 4x return on investment
from the disposal of Webscreen Systems
Limited to Juniper Networks for £6.3m, while
Telit bought Crossbridge for a US presence,
and Salmon was snapped up by media goliath
WPP.
0
40
60
Dec 12 Feb 13 Apr 13Jan 13 Mar 13 May 13
120
15,000
20
80
100
Figure 21: M&A Transactions
Source: Megabuyte
enterprisevalue£m
Digital Barriers
- Visimetrics
Juniper Networks
- Webscreen Systems
Pilat Media
- OTTilus
Swiftpage - Sage ACT!
and Sage SalesLogix
Anite
- Propsim
Capita
- Northgate Managed Services
Ion Trading
- Ffastfill
Cisco Systems
- Ubiquisys
(£205m)
ACS
- Computer Software Holdings
TIG - Gemini
Vehicle Solutions
Six Degress Group
- BIS
Datatec - 2e2
Group Europe
Kofax - Altosoft
BITSS Global
- Gresham
Computing
Liberty Global
- Virgin Media
(£14.9bn)

22. q2 2013 | tech talk20
Global M&A Transactions
Strategic M&A from the global players
continues apace, with Cisco Systems and
Oracle yet again splashing the cash. For Cisco,
it purchased Israeli based Intucell, a specialist
in Self Optimising Networks for $475m, and
this was followed by its aforementioned deal
for small cell specialist Ubiquisys. Since mid-
November, Cisco has spent well in excess of
$2.2bn on five companies, as it looks to lessen
its reliance on its core hardware business.
Sector focus: Corporate Deals Review

23. tech talk | q2 2013 21
Meanwhile, Oracle announced the acquisition
of Acme packet for $1.7bn, and this was soon
followed up with the purchase of Tekelec for
an undisclosed sum, representing its 15th
acquisition since the start of 2012. Whilst
Oracle’s deal was the largest deal amongst
the global players this quarter, Fiserv likewise
opened its purse strings with the $1bn deal
for Connecticut based Open Solutions Inc,
provider of enterprise account processing
technology, paying $55m and assuming
$960m of debt.
Alongside Cisco’s purchase of Ubiquisys,
JDSU’s acquisition of network optimisation
specialist Arieso is another example of larger
US strategic players targeting the UK market.
Arieso was snapped up for $85m in cash, with
a 4.4x revenue multiple attached to the deal.
Elsewhere, Cloud storage provider Dropbox
announced the acquisition of Orchestra, the
company behind the email app Mailbox, with
the file sharing company looking to broaden
its horizon beyond its core offering.
Wholesale data centre Digital Realty Trust
acquired three Paris based data centres
from Bouygues Telecom for €60m whilst, in
early second quarter activity, the purchase
of French IT services player Alti for €75m by
Tata Consultancy Services was notable for an
interesting shift of strategy for the company,
and may point to more consolidation in the
European IT services market.
The bidding process for Dell Inc continues,
with further bids coming through billionaire
investor Carl Icahn, and PE firm Blackstone.
Icahn offered $15 per share for up to 58% of
the equity, while Blackstone offered a bid in
excess of $14.25 per share (against the original
bid of $13.65 per share).
BSkyB announced the acquisition of O2’s UK
broadband business for up to £200m, making
the company the number two player in the
market. The deal highlights the abject failure
by UK mobile operators in persuading its
customers to take broadband and fixed line
telephony packages, while for Sky; it adds
0.56m of fixed line broadband customers to
its base.

24. q2 2013 | tech talk22
The market holds its breath for the
return of the IPO
In number terms, Capital Market fundraising
activity picked up in the first quarter of 2013,
albeit with the usual absence of an IPO.
Overall, nine funding rounds were completed
raising a total £77.9m, compared to £128.4m
raised from five rounds in the final quarter of
2012.
In the most significant placing, Advanced
Computer Software raised £44.0m which was
put to work on the acquisition of Computer
Software Holding for £110m.
Mobile billings provider Bango raised £6.5m
on the markets to fund its expansion into
emerging markets and to shore up its balance
sheet. It is significant to note that, at 200p
per share (a 3.6% discount), this was the
first fundraising since its IPO (at least four
previously) to be at a price substantially above
its June 2005 IPO price of 134p.
Sector focus: Corporate Deals Review
Keeping with all things mobile,
mobile gambling provider
Probability raised £2.8m
at 64p (a 5% discount),
coming on the back of its
success with its 40 Shades
of Santa game.
Meanwhile, Corero raised
£4.1m to fund investments
in its new generation of
products, while there
were also fundraising
events from Pinnacle;
£2.6m tofund working
capital purposes,
and from K3; £2.7m
to strengthen its
balance sheet.
Datatec also raised
£8.6m to help fund
its 2e2 acquisition.

25. size of bubble = amount raised
tech talk | q2 2013 23
Figure 22: Capital Market fundraising
Source: Megabuyte
trailingEV/Revenue
0
4
6
Nov 12 Feb 13Jan 13 May 13
12
2
8
10
Statpro
Group Plc
Parity
Group Plc Datatech Ltd
Digital
Barriers Plc
Redstone Plc
Probability
Plc
Advanced
Computer
Software
Monitise Plc
Bango Plc
Corero
Network
Security Plc
eServGlobal
Ltd
Pinnacle Technology
Group Plc
Pinnacle
Technology
Group Plc
K3 Business
Technology
Group Plc
FPO IPO

26. q2 2013 | tech talk24
Redstonecompletedthedemergerofitshigher
margin, £50m managed services business,
into a new company called Redcentric, while
Redstone now composes of the lower margin,
£30m infrastructure cabling business. At
the same time, Redstone raised £6m on the
markets, at 1p per share, a 12% discount to
its closing price, with the funds being used to
reduce its debts (approximately £18m post
the Maxima deal).
As activity within the private equity
community begins to show signs of revival,
there are also green-shoot signs that the IPO
market could make a comeback this year.
With just 4 IPOs in the sector over the last
couple of years, and with a number of players
having exited either London’s main market or
AIM, institutional investors are warming to
technology firms.
Sector focus: Corporate Deals Review
Over the last year, the City has treated certain
trends such as Mobile Money or Enterprise
Software favourably, with the likes of
Monitise, eServGlobal, Bango, and Advanced
Computer Software raising significant sums
of money. Meanwhile performances from the
likes of stock market wonder kid WANdisco
will further help sentiment towards fast
growing technology companies.
Moreover AIM may make an ideal hub for
those fast growing companies that may still
be too immature for private equity backing,
but not ideal for VC investment either.

28. for more information contact
birmingham
graham elsworth
t: +44(0)121 352 6212
e: graham.elsworth @bdo.co.uk
leeds
giles wharton
t: +44(0)113 204 1234
e: giles.wharton@bdo.co.uk
southampton (audit)
paul anthony
t: +44(0)238 088 1909
e: paul.anthony@bdo.co.uk
sheffield
craig burton
t: +44(0)114 223 1760
e: craig.burton@bdo.co.uk
cambridge
gary hanson
t: +44(0)122 353 5050
e: gary.hanson@bdo.co.uk
reading
simon brooker
t: +44(0)118 925 4488
e: simon.brooker@bdo.co.uk
london (audit)
julian frost
t: +44(0)207 893 2350
e: julian.frost@bdo.co.uk
reading (cf)
philipp prince
t: +44 (0) 118 952 7372
e: philipp. prince@bdo.co.uk
guildford
rhodri whitlock
t: +44(0)148 356 4646
e: rhodri.whitlock@bdo.co.uk
bristol
neil dimes
t: +44(0)117 930 1501
e: neil.dimes@bdo.co.uk
manchester
julien rye
t: +44(0)161 817 7505
e: julien.rye@bdo.co.uk
southampton (cf)
paul russell
t: +44(0)238 088 1796
e: paul.russell@bdo.co.uk
nottingham
simon browning
t: +44(0)115 962 9244
e: simon.browning@bdo.co.uk
gatwick
john everingham
t: +44(0)129 359 1089
e: john.everingham@bdo.co.uk
scotland
neil mcgill
t: +44 (0)141 249 5232
e: neil.mcgill@bdo.co.uk
london (tax)
ross wilkinson
t: +44(0)20 7893 3603
e: ross.wilkinson@bdo.co.uk
This publication has been carefully prepared, but it has been written in general terms and
should be seen as broad guidance only. The publication cannot be relied upon to cover
specific situations and you should not act, or refrain from acting, upon the information
contained therein without obtaining specific professional advice. Please contact BDO
LLP to discuss these matters in the context of your particular circumstances. BDO LLP,
its partners, employees and agents do not accept or assume any liability or duty of care
for any loss arising from any action taken or not taken by anyone in reliance on the
information in this publication or for any decision based on it.
IS Research Ltd will not accept any liability to any third party who for any reason or by any means obtains access or otherwise relies on this report. IS Research Ltd has itself relied on information
provided to it by third parties or which is publicly available in preparing this report. While IS Research Ltd has used reasonable care and skill in preparing this report, IS Research Ltd does not
guarantee the completeness or accuracy of the information contained in it and the report solely reflects the opinions of IS Research Ltd.
The information provided by IS Research Ltd should not be regarded as an offer to buy or sell securities and should not be regarded as an offer or solicitation to conduct investment business as
defined by The Financial Services and Markets Act 2000 (“the Act”) nor does it constitute a recommendation. Opinions expressed do not constitute investment advice. Any information on the past
performance of an investment is not necessarily a guide to future performance. IS Research Ltd operates outside the scope of any regulated activities defined by the Act. If you require investment
advice we recommend that you contact an independent adviser who is authorised by the Act to conduct such services. IS Research Ltd does not have any direct investments in any companies
contained in the report and has compiled this report on an independent basis.
BDO LLP, a UK limited liability partnership registered in England and Wales under
number OC305127, is a member of BDO International Limited, a UK company limited
by guarantee, and forms part of the international BDO network of independent member
firms. A list of members’ names is open to inspection at our registered office, 55 Baker
Street, London W1U 7EU. BDO LLP is authorised and regulated by the Financial Conduct
Authority to conduct investment business.
BDO is the brand name of the BDO network and for each of the BDO Member Firms.
BDO Northern Ireland, a partnership formed in and under the laws of Northern Ireland, is
licensed to operate within the international BDO network of independent member firms.
© 2013 BDO LLP. All rights reserved.