# AdEPT Technology Group substantial, strategically important acquisition of Datrix Ltd

- Link: https://www.directorstalkinterviews.com/adept-technology-group-substantial-strategically-important-acquisition-of-datrix-ltd/412977271
- Published: 2021-04-14T07:11:27+01:00
- Author: Giles

**AdEPT Technology Group plc** ([LON:ADT](https://www.directorstalkinterviews.com/company/adept-technology-group-plc/adt.l)),
one of the UK’s leading independent providers of managed services for IT, connectivity,
unified communications solutions, and cloud services, have announced that yesterday
it completed the acquisition of the entire issued share capital of Datrix Limited
for an initial cash consideration of £9.0m, which has been funded through the Group’s
new bank facility.

You can listen to what CEO Phil Race told DirectorsTalk about today’s news here :
[Datrix Acquisition a Game-Changer](https://www.directorstalkinterviews.com/adept-technology-group-datrix-acquisition-is-a-game-changer-interview/412977300)

Datrix is a well-established, award-winning supplier of advanced cloud-based networking,
communications, and cyber security solutions, headquartered in London, with expertise
in the growing Software Defined Wide Area Networking (“SD-WAN”) market.

This substantial, strategically important acquisition is wholly in line with the
Board’s stated strategy to; a) grow both organically and by acquisition, leveraging
the Group’s banking facilities which are supported by a strong balance sheet and
high cash generation, b) to consolidate a fragmented market, through complementary
acquisitions with strong levels of recurring revenue and margin, and c) continually
bring enhanced capability to customers.

Datrix fulfils all of these criteria, enhancing the Group’s capabilities and increasing
its market share in a key cloud-centric growth market and in complementary verticals.

**Financial highlights:**

| ● | Following the Acquisition, Group run-rate revenue and adjusted EBITDA^(1) for the year ended 31 March 2022 is expected to increase by c.18% and c.13% respectively | 
| ● | Initial cash consideration of £9.0m on a debt free cash free basis as at 31 March 2021, funded through the Group’s new banking facility | 
| ● | Datrix unaudited reported revenue in the 12 months ended 31 January 2021 of £10.7m, generating adjusted EBITDA^(1) of £1.5m and profit before tax of £0.6m  | 
| ● | 63% of revenue and gross margin were generated from recurring services for the 12 months ended 31 January 2021 | 
| ● | The Acquisition is expected to be earnings enhancing in the current financial year ending 31 March 2022, being the first^(2) full year of ownership | 
| ● | Earn-out consideration of up to £7.0m payable in cash based on the performance of Datrix in the 12 months ending 31 March 2022 |

_^(1)__ Adjusted EBITDA is after £0.4m of synergies, comprising staff savings post
acquisition._

^(2) _Pursuant to the terms of the share purchase agreement, the effective date 
of the acquisition is 1 April 2021_

**Operational highlights:**

| ● | Datrix provides instant scale in the growing advanced cloud-based networking market, expanding the Group’s portfolio of core competencies to include the latest technology, SD-WAN | 
| ● | With 63% of revenues generated from complementary customers in the public sector, Datrix strengthens the Group’s position on Local and Central Government supplier frameworks and its presence in key vertical markets, particularly the NHS | 
| ● | Strengthens AdEPT’s cloud product portfolio, bringing additional highly complementary, market-leading, Gartner Magic Quadrant products to the Group, from significant new partner relationships | 
| ● | Experienced senior management team, who have transformed the business since joining Datrix in 2019, are being retained by AdEPT and incentivised to continue delivering growth |

**Background information**

Datrix designs, delivers, and manages end-to-end enterprise solutions for large,
complex, multi-site, mission-critical environments. Approximately 63% of revenue
and gross margin is generated from recurring services, with 63% of total revenue
generated from public sector customers.

The Acquisition provides instant scale, expanding the Group’s portfolio and creating
core competencies in the latest secure cloud technology, SD-WAN and related cyber
security products.

The demand for such unified, secure cloud-based network and communication solutions
has been accelerated by the changes to working lifestyles, driven by the pandemic,
and this demand continues to grow in both the public and private sectors. Datrix
is very well positioned to benefit from the increased need for these new technologies.

**Complementary vertical markets**

Datrix has a strong customer base which is well aligned with AdEPT’s vertical market
focus. The Datrix customer base includes NHS Trusts, care homes, local authorities,
universities, energy companies, law firms and construction companies. As well as
bringing new customer relationships, the addition of Datrix strengthens AdEPT’s 
position on Local and Central Government supplier frameworks.

This builds on the AdEPT expertise in this field, as evidenced by the recent completion
of the Kent wide NHS HSCN network deployment benefitting over 400 NHS locations 
across the county, including critical care hospitals, care homes and Doctor’s surgeries.

**Gartner Magic Quadrant product strategy**

The Datrix strategy is focused on the delivery of next generation solutions from
companies ranked as leaders by Gartner within their Magic Quadrant methodology. 
Gartner is a widely respected technology research and advisory firm.  To be deemed
a leader by Gartner the product or company must excel based on their vision and 
their ability to execute the vision within their field.

**Outstanding partner relationships**

Datrix is a highly respected partner of Extreme Networks, a provider of end-to-end
networking solutions for large enterprises. Datrix holds the ultimate Black Diamond
Specialized Partner status with Extreme. This status reflects that Datrix has significant
expertise and experience in their technologies and solutions. Bringing benefits 
in terms of technical, marketing and pricing support. Datrix is a premium partner
with Cato Networks, which provide converged SD-WAN and network security solutions
delivered as a cloud platform, and is also a Gold Partner of Palo Alto Networks,
a global leader in cyber security.

**Financial information on Datrix**

The valuation of the business was based on the unaudited management accounts of 
Datrix, for the 12 months to 31 January 2021, reported revenue of £10.7m, up 8% 
on the previous 12 months’ revenue of £9.9m. Gross margin rose 36% from £3.1m to
£4.2m, driven by an increase in contracts for highly secure enterprise networks 
and professional services. The business was restructured, during this period, to
match the new product focus and EBITDA improved from a loss of £1.1m, in the prior
12 months, to a profit of £1.1m. Net liabilities and gross assets at 31 January 
2021 were £1.7m and £3.8m, respectively.

Additionally, as a result of the Acquisition, the Group expects to generate cost
synergies of £0.4m in the year ending 31 March 2022.

**Terms of the Acquisition**

Initial consideration of £9.0m of Datrix on a debt free, cash free basis as at 31
March 2021 is payable in cash. Pursuant to the terms of the share purchase agreement,
the effective date of the acquisition is 1 April 2021. Further earn-out consideration
of up to £7.0m may be payable in cash dependent upon the trading performance of 
Datrix in the 12-month period ending 31 March 2022.

The total consideration will be funded out of AdEPT’s new bank facility, announced
as part of the Trading Update announced on 7 April 2021, with headroom in the facility
to support further acquisitive growth alongside the payment of the outstanding deferred
consideration.

**Management**

The key management of Datrix are retained in their current capacity, with a clear
focus on expanding the Group’s presence in advanced cloud-centric networking.  The
Datrix operations will be migrating to the new One AdEPT platform, creating improved
operational and financial insight. Under AdEPT’s ownership, Datrix will be led by
a current Managing Director of Datrix, Mark Thomas, who will report directly to 
AdEPT CEO, Phil Race. 

Mahmood Chaudhri, Datrix exiting CEO, will be retained in a consultancy role during
the earn-out period. 

**Financial impact of the Acquisition**

The Board expects the Acquisition to be earnings enhancing in the year ending 31
March 2022, being the first full year of ownership.

Following the Acquisition, the Group run-rate revenue and adjusted EBITDA^(1) for
the year ended 31 March 2022 is expected to increase by c.18% and c.13% respectively,
including the £0.4m of cost synergies the Group expects to generate for this period.

> **Phil Race, Chief Executive of AdEPT Technology Group, said:**
> “This acquisition is a game-changer for AdEPT, taking us to the forefront of next
> generation networking delivery. The AdEPT Group already has a strong presence 
> in the networking and cyber security arena, as evidenced by the delivery of the
> mission critical Kent NHS network, the deployment of the secure Fortinet firewall
> across London schools, and through offerings on our AdEPT owned hybrid cloud platform,
> Nebula.
> Datrix, with the outstanding new products and partners it brings, builds significantly
> on our capabilities, adding scale and extending both our expertise and our solution
> breadth, which will benefit our customers in this large and growing marketplace.
> “Datrix is a high-quality business with a well-established customer base, generating
> strong levels of recurring revenue and a cash generative, capex light, business
> model.
> We are delighted that the key members of the Datrix senior management team have
> chosen to join us. I look forward to working with them over the coming years and,
> on behalf of the Board, welcome them wholeheartedly to AdEPT.”

> **Mark Thomas, Managing Director of Datrix, added:**
> “We are delighted to become part of the AdEPT Technology Group.  From the outset,
> it was clear that the solution set we take to market is complementary to AdEPT’s,
> and that the combination of AdEPT and Datrix expertise will bring benefits to 
> both parties, and crucially to our customers. Our joint presence in the NHS will
> undoubtedly create new opportunities and being part of a larger group will help
> us capitalise on the growing and substantial market for advanced cloud-centric
> networks and cyber security.”

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