The end of the bull run?

Transcription

1 PUBLISHED: 29 OCTOBER 213 This report relates to Peer Groups from within the UK and Global markets.

2 Developed specifically to provide actionable insights, our reports analyse developments in peer group dynamics, industry trends and corporate activity for both UK and global companies in the Software, IT services and Telecoms sectors. Our intelligence is accessible through a variety of subscription, pay-as-you go, project or retainer-based options designed to meet the differing requirements of our customer base. For: CXOs Invaluable competitive intelligence delivered through a For: Investors, Advisers and M&A Focused Companies For: CXOs, Investors and Advisers Monitor, quantify and respond regular snapshot of the An indispensable aid to to high-level trends affecting financial performance, share portfolio management, tracking competitive positioning, price and valuation trends and key market trends or monitoring financial performance and corporate activity within deal flow and valuations corporate activity in the individual Megabuyte peer encompassing public and technology sector. groups. private markets. LEARN MORE AT: I S Research Ltd The Blade, Abbey Square, Reading, RG1 3BE +44 () [email protected] 2 PUBLICATION DATE: 29/1/13

3 Software AES Accounting & Enterprise Soft BIS Banking & Insurance Soft MTS Media & Telecoms Soft SA Specialist Applications SIS Security & Infrastructure Soft ICT Services CSI Consulting & Systems Integration DCH Data Centre & Hosting Services IS Infrastructure Services MWS Mobile, Wireless & Satellite TN Telecoms & Networks MD Media RT Retail GH Government & Healthcare MC Manufacturing & Construction WDC Wholesale data centres CR Carrier rich data centres DCH Data centre and hosting companies H Hosting companies MBO Management Buyout SBO Secondary Buyout P2P Public to Private FF Follow-on Fundraising IPO Initial Public Offering FPO Follow-on Public Offering Share price outperformance grinds to a halt 6 Data centre and hosting defined 6 Share price weakness 7 Managed Hosting: Rackspace and the elephant in the corner 8 Carrier rich colo: Interxion - reassuringly boring 1 Investing to grow 13 Private UK companies 13 Plenty of corporate activity 14 The end of the bull run for data centre and hosting? 14 Public companies 16 UK private companies 18 A poor 213 for DCH shares 22 M&A: to buy or build? 24 Private Equity; cash and growth 25 Supporting Data 27 Company Profiles 33 Document Information All share prices and valuations quoted are as at the close of business on 21 October 213. Significant institutional investment is classified as investment of greater than 3% of issued share capital. Market capitalisation boundaries are defined as follows: Small Cap < 5m Mid Cap 5m< 2m Large Cap > 2m ICT Services Philip Carse [email protected] Mike Rogers [email protected] Megabuyte 213 PUBLICATION DATE: 29/1/13 3

4 UK COMPANIES 1&1 Internet Adapt Ark Continuity Attenda Claranet Connexions4London Control Circle Fasthosts Internet Gyron Internet Host Europe Infinity SDC Iomart Next Generation Data Node4 Onyx Outsourcery Pulsant Six Degrees Telecity Telehouse Europe The Bunker Secure Hosting UK2 UKFast.net GLOBAL COMPANIES CoreSite Cyrus One Digital Realty Trust Dupont Fabros Technology Equinix Interxion Rackspace This Megabuyte Insight Report reviews recent corporate and financial trends in the data centre and hosting services (DCH) peer group, which comprises ten US and UK publicly listed companies and 2 UK private companies. Their activities span the DCH value chain, from wholesale data centres (eg Digital Realty Trust (DRT), Dupont Fabros Technology (DFT)) through retail data centres (eg Telecity, Equinix) to providers of shared hosting (eg Fasthosts, UK2) and managed hosting (eg Rackspace, Control Circle). Many of the smaller UK companies profiled offer a combination of data centre colocation, hosting and, often, connectivity and related services. After a sustained share price outperformance, publicly listed DCH companies have significantly under-performed over the last year after the index peaked in January 213, with an average oneyear decline of 4.7%. Aside from Iomart, most stocks are down, by 22% for Rackspace, 13% for DRT and circa 1% for Telecity and Equinix. Our analysis highlights declining revenue and EBITDA growth in absolute and percentage terms for most companies, though also improving FCF generation for retail data centre operators after a period of sustained investment. Rackspace has experienced the most dramatic slowdown in quarterly growth as it shifts its focus from managed hosting to the Cloud (and in turn to taking on the elephant in the corner Amazon Web Services), whilst key KPIs are moving in the wrong direction. However, most companies can only aspire to its current mid-teens organic growth (down from nearer 3%) and still solid EBITDA and FCF margins. In contrast, managed hosting peer Iomart is sustaining mid-teens organic growth, with well-judged M&A taking growth to nearer 3%; it also manages to meet or more often exceed carefully managed market expectations. Among retail colo providers, Interxion has consistently added approximately 2m in revenues and 1m in EBITDA every quarter for the last two years, even after a major capex programme. In contrast, Equinix s growth is trending downwards both globally and for its European operations, whilst Telecity s trends have been boosted by M&A but include solid teens organic growth. Somewhat ironically, cooling investor enthusiasm for these companies comes just as they end major capex programmes, with a boost in FCF margins, whilst still achieving teens organic growth rates. FIGURE 1: FIGURE 2: Source (left): Capital IQ Source (right): Rackspace Capital IQ 2,6 DCH Index MBTW All-Share FTSE All-Share NASDAQ 2,4 ICT Services 2,2 2, 1,8 1,6 1,4 1,2 1, Oct-12 Jan-13 Apr-13 Jul-13 Oct Q2-11 Revenue growth FCF growth Q3-12 Q2-12 Q1-12 Q4-11 Q3-11 EBITDA growth est. Q4-13e Q3-13e Q2-13 Q1-13 Q4-12 Wholesale data provider DRT has been a poor share price performer of late, coinciding with a downturn in growth. The company s chart topping investment on M&A and new data centres has yet to translate into above average growth. It has also not enjoyed growth in price metrics to the same degree as hosting and retail colo; it is little surprise that DRT is attempting to move up the value chain, adding connectivity and colo services and trampling on the toes of Equinix, Telecity and Interxion. 4 PUBLICATION DATE: 29/1/13

5 Global data centre traffic (exabytes) PUBLISHED: 29 OCTOBER 213 Institutional investor enthusiasm may be cooling, but private equity is still attracted to private UK DCH companies by solid organic growth, good margins and FCF, and M&A potential, with recent deals including Cinven/Host Europe, LDC/Node4 and a 48m funding for Infinity. Whilst there are pockets of low/no growth (particularly shared hosting providers such as Fasthosts and UK2), many companies with managed hosting and/or colo activities are achieving teens or above organic growth and average M&A-assisted revenue and EBITDA growth of 38% and 41% respectively. Exits from the private equity class of 21/11 (Adapt, Attenda, Onxy, Pulsant, Six Degrees, UK2 etc) may give larger PE houses the opportunity to play in the sector, as per the Cinven/Host Europe deal. FIGURE 3: FIGURE 4: 5% Public co. avg. Private co. avg. 1 Cloud Traditional 4% 3% 2% 5 Source (left): Source (right): Cisco 1% % Revenue Growth EBITDA Growth The sector continues to be an M&A hotspot. For data centre companies, acquisitions are used to boost capacity (as an alternative over organic development) and/or geographic expansion, with Telecity buying into Finland and Turkey in the last year, and following significant cross border M&A by Equinix, Telehouse, NTT (Gyron) and DRT among others in 212. We wonder if DRT s retail colo and European ambitions could induce it to splash out on Telecity or Interxion? Hosting M&A tends to be smaller bite sized deals (with the exception of last year s Claranet/Star deal), with Iomart, UKFast and Adapt buying recently, though activity at buy and builds Pulsant and Six Degrees has noticeably slowed. We expect to see continued M&A activity from the larger European players, including 1&1 Internet (fresh from its Arsys Spain deal) and Host Europe, with renewed private equity backing. Overall, institutional investor disquiet seems more to do with nervousness that inevitably comes with high valuation multiple stocks than with a fundamental change in outlook for DCH players. The growth outlook for Telecity, Interxion and Equinix has probably edged down a bit, but the companies have made no secret of the maturing nature of their businesses with improving FCF profiles, whilst Rackspace has clearly stumbled of late. However, the outlook for private companies with colo and/or managed hosting/cloud capabilities looks as strong as ever, and indeed probably better than this time last year given economic recovery and growing Cloud momentum. All of the drivers are in place for continued solid organic growth; 25% CAGR growth in data centre traffic to 217 (Cisco); continued IT outsourcing and moves to off-premise; and Cloud deployments (whether public, private or hybrid) becoming a mainstream consideration for many businesses. The bull run for public DCH companies may, or may not, have ended, but the outlook remains very positive for the DCH sector. PUBLICATION DATE: 29/1/13 5

6 The bull run in the share prices of data centre and hosting companies has come to a resounding halt in recent months, with the Megabuyte Data Centre and Hosting (DCH) index peaking in January 213. Despite slightly improved share price performances from some of the companies in the last three months, six out of ten tracked companies have seen their share prices decline over the last year, in particular two of the US bellwethers, Rackspace and Digital Realty Trust. In contrast, Iomart s share price continued ever upwards over the year. In this Megabuyte Insight Report, we examine why the bull run appears to have ended, just as the Cloud is at last becoming a reality for business of all shapes and sizes, in particular by examining the recent financials of both public and private companies in the space. Our overall conclusion is that the abrupt share price weakness is not reflective of the broader market opportunity or dynamics, which are positive and if anything have improved over the last year given economic recovery and increasing momentum behind the Cloud. Before we dive in, it s worth highlighting once again that the DCH peer group actually contains a wide range of companies, with the only common denominator being the fundamental role played by a data centre. Readers may wish to peruse last year s Insight Report for a more detailed review of the different business models, but in essence, the peer group contains the following types of company: Wholesale data centre providers such as DRT and DFT primarily property companies which build major data centre facilities, leasing out large chunks of capacity to service providers (including retail data centre providers), large enterprise etc to build their data centre halls. Retail data centres the larger European/global ones such as Telecity, Equinix and Interxion, as well as small UK focussed companies which provide smaller facilities for service providers, companies etc to colocate their servers, storage and so on. Hosting providers, who host companies websites, databases, applications etc. These in turn range from mass market or shared hosting, catering to consumers and small businesses, through to managed, dedicated or Cloud hosting more bespoke or feature rich services for larger organisations. Whilst the public quoted companies tend to fall in one of the three camps, there are many smaller private UK companies that provide both data centre colocation and hosting services, for example Node4, UKFast, Pulsant, Attenda, Adapt, Onyx. As befits a property business, wholesale data centres (WDC) generate lower revenues per area of floor space than retail data centres, whilst hosting tends to generate substantially higher average revenues, particularly in the case of managed hosting. However, established wholesale data centres generate EBITDA margins of 6% plus, compared with 4-5% for the top end of the retail data centre market (essentially the established city centre, carrier rich operators such as Telecity, Interxion and Equinix), whilst reasonably established shared hosting providers (such as Host Europe, UK2) generate EBITDA margins of 3-4%. Most of the smaller companies covered by Megabuyte generate lower EBITDA margins, reflecting their earlier stage of development and/or smaller size. Whilst the data centre focussed businesses generate higher EBITDA margins, they also have much higher capex requirements, expanding existing sites and/or adding new sites to keep supply ahead of demand. In contrast, hosting-driven capex is more success based, buying servers to meet new customer demand. As a result, the more hosting focussed companies (H) or those providing both data centre and hosting services (DCH) tend to have lower capex requirements and a better cash flow profile. 6 PUBLICATION DATE: 29/1/13

7 FIGURE 5: FIGURE 6: 6 4 Revenue ($) per sq/ft 15% 1% Capex/Revenues EBITDA- Capex/Revenues Source (left): Company Accounts Source (right): Company Accounts 2 Wholesale DC Retail Managed Hosting (Rackspace) 5% % -5% WDC CR DCH H The boundaries between these activities are however blurring, particularly at the data centre end. For example, some of the wholesale data centre providers are shifting into retail, laying on connectivity, sub-dividing their vast halls into smaller bite sized chunks that they are willing to lease on shorter term contracts. DRT, Infinity and Virtus in London are good examples of this, lured by the higher revenues on offer, and also the need to sell space in a competitive market. There is now even an intermediate step between colocation (a customer installing and maintaining its own servers in a third party data centre) and a hosting service whereby the service provider supports a customer s data centre activities on a dedicated or shared service; Molo, or managed colocation. We examine share prices and valuations in more detail in a subsequent chapter, but as the following chart shows, the DCH peer group has suffered share price weakness over the last year. There has been an average decline of 4.7% versus returns of 38.7% for the Megabuyte Taylor Wessing All- Share index and 29.9% and 15.6% for NASDAQ and FTSE respectively. Only two companies (Iomart and Coresite) have achieved double-digit gains (+34% and +32% respectively), whilst the under-performers include Rackspace, DRT and Telecity, with respective declines of 22%, 13% and 11%. FIGURE 7: Share price Mkt Cap (m) return -25% % 25% 5% Iomart Coresite $ DFT $ ,653.1 Interxion $ ,612.3 CyrusOne $ Outsourcery Equinix $ ,242.7 Telecity 8.3 1, month 1 month 3 month Source: Capital IQ DRT $ ,223.4 Rackspace $ 5.4 7,6.6 N.B. Outsourcery 12 month return equal to performance since May 213 IPO, CyrusOne since January 213 IPO In order to understand why share prices have weakened in recent months, we look at representative companies in hosting, retail and wholesale data centres. PUBLICATION DATE: 29/1/13 7

8 Rackspace has had the biggest and highest profile share price fall. Since peaking at an all time high of near to $8 in February, the shares fell 55% to $35 in June, and have since only partly recovered to $5. This comes in spite of the company having a financial profile most companies can only aspire to, from selling managed and Cloud hosting services to enterprises in North America, the UK, Australia, Hong Kong and other markets. As the first chart shows, Rackspace has consistently grown revenues quarter on quarter, whilst usually financing capex out of EBITDA. The subsequent charts, however, show the causes of investor disquiet, which reflect both execution and the clear costs and uncertain rewards of taking on Amazon Web Services (AWS) - the elephant in the room - in Cloud computing. Rackspace has historically focused on managed hosting services, generating approximately $3, per month per customer; it began selling public Cloud hosting services (ie services hosted on shared infrastructure and accessible over the public internet) in 28, generating approximately $9 per month, and Cloud services now account for 26% of revenues. The company is also pushing OpenStack, a standards-based approach to Cloud computing developed by itself and NASA among others, which Rackspace believes lowers the barrier to adoption of Cloud computing. Rackspace also sees OpenStack as supporting its moves to take on AWS in the provision of Public Cloud services for the largest of clients. The push into Public Cloud has, however, had a negative impact to date. Incremental revenue and EBITDA growth in each quarter (compared with the previous quarter rather than the year before quarter, and expressed as a 12 month average to smooth irregular quarters) has been falling significantly in absolute terms, and even more so in percentage growth terms, whilst capex has been rising relative to EBITDA. For example, in the first quarter of 213, Rackspace added just $9.3m of revenues versus the fourth quarter of 212 whilst EBITDA fell by $4.7m; it had added $17-18m of revenues in each of the previous seven quarters, and typically also grown EBITDA. Annual revenue growth has slowed from circa 3% throughout 211 and an average of 28% in 212 to just 18% in the most recent quarter, and guidance for the third quarter is for 15% growth at the mid point. FIGURE 8: FIGURE 9: 5 4 Revenue EBITDA Capex est. 2. Revenue growth FCF growth EBITDA growth est. Source (left): Rackspace Source (right): Rackspace Q2-11 Q3-11 Q4-11 Q1-12 Q2-12 Q3-12 Q4-12 Q1-13 Q2-13 Q3-13e Q4-13e -1. Q2-11 Q3-11 Q4-11 Q1-12 Q2-12 Q3-12 Q4-12 Q1-13 Q2-13 Q3-13e Q4-13e The push into Public Cloud, combined with company-acknowledged execution issues has, however, impacted the key net monthly upgrades KPI. Whilst net churn runs at a fairly constant.8% per month, net upgrades have fallen, dragging down monthly growth in the installed base from approximately 1% to an average of just.4% in the last half year; in other words, organic growth just from the existing customer base has fallen from circa 12% a year to circa 5%. Meanwhile, investment in new data centres in Australia and elsewhere, as well as in servers ahead of Cloud demand, has dragged down capacity utilisation, whilst revenue per installed server has declined for the first time ever. 8 PUBLICATION DATE: 29/1/13

9 revenues m Revenues m PUBLISHED: 29 OCTOBER 213 Source (left): Rackspace Source (right): Rackspace FIGURE 1: FIGURE 11: 3.% 1.5%.% -1.5% Q3 11 Q4 11 Net Upgrades (monthly avg.) Churn (monthly avg.) Growth in installed base (monthly av.) Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 1,35 1,25 1,15 1,5 Q3 11 Q4 11 Avg. monthly revenue per server ($) Capacity utilisation Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q % 67% 62% 57% 52% Overall, the seeds of investor disquiet are clear to see in terms of slowing growth and pressure on margins, as well as concern that Rackspace is aiming at the undisputed leader in Cloud computing, AWS. The latter according to some analyst estimates is on track for over $3bn of revenues in 213 versus $2bn in 212, or about double Rackspace s total hosting revenues. Interestingly, in order to re-differentiate itself, Rackspace has recently switched its emphasis to Hybrid Cloud, which incorporates elements of both Public and Private Cloud for an enterprise, for example Private Cloud for mission critical and/or demand steady applications and Public Cloud for new service development and/or applications with significant variations in bandwidth demand. Iomart Iomart is the only other sizeable quoted managed hosting provider, and its trends are relatively distorted by frequent acquisitions; five in the last two financial years alone. However, a revenue bridge between clean baseline FY11 revenues of 23.6m (which excludes a five month contribution from Titan) and the current run rate based on the first half of FY13/14 ( 52.6m) shows that half of the 29m growth in revenues in that period comes from acquired companies, with the other half being organic growth, equivalent to a CAGR of 15%. FIGURE 12: FIGURE 13: 3 Revenue Capex EBITDA est. 4 Revenue growth est. EBITDA growth 2 3 Source (left): Iomart Source (right): Iomart 1 H1-11 H2-11 H1-12 H2-12 H1-13 H2-13 H1-14eH2-14e 2 1 H2-11 H1-12 H2-12 H1-13 H2-13 H1-14e H2-14e FIGURE 14: FIGURE 15: Source (left): Iomart Source (right): Iomart M&A Growth Melbourne Hosting Int. Engineering FY11 organic revs. Organic Growth Skymarket Switch Media EQSN Global Gold Titan Annualised FY14 revs Easyspace Hosting FY-9 FY-1 FY-11 FY-12 FY-13 PUBLICATION DATE: 29/1/13 9

10 Thus, compared to Rackspace, Iomart has achieved lower but still very creditable organic growth over the period, and its mid teens organic growth is all the more impressive given that its existing smaller customer-focused Easyspace hosting business has barely grown in recent times. We attribute its strong share price performance to its ability to meet or more often exceed carefully managed market expectations, its ability to buy small private companies usually at sensible prices, and its scarcity value as the only UK listed hosting business of size. Interxion is a Dutch based provider of data centre colocation services across Europe, which has been listed on NASDAQ since January 211. In contrast to Rackspace, the shares have been relatively flat over the last year and, at $23.5, are comfortably up on the $13 IPO price. The company is a model of consistency, some would even say boringness, with solid long term revenue and EBITDA growth; indeed, for the last eight quarters the company has grown revenues and EBITDA by a steady 2m and 1m per quarter, and the same is expected for the rest of 213. What is perhaps surprising is that this steady growth has continued during a period of significant capacity increases, with a major capex programme during most of 211 and 212 that saw it invest considerably more than EBITDA; increasing equipped space and power capacity by 18% and 36% respectively. The fact that it has maintained utilisation at a fairly steady mid-7s suggests that it is adept at bringing on revenue generating space in a controlled manner. However, whilst Interxion is a model of stability, a constant rate of revenue and EBITDA addition implies an inevitable decline in percent growth rates. FIGURE 16: FIGURE 17: Source (left): Interxion Capital IQ Source (right): Interxion Capital IQ Revenue EBITDA Capex est. Q2-11 Q4-11 Q2-12 Q4-12 Q2-13 Q4-13E Revenue growth EBITDA growth est. Q2-11 Q4-11 Q2-12 Q4-12 Q2-13 Q4-13E Equinix and Telecity Interxion s main peers Equinix and Telecity have made extensive use of M&A as well as organic investment to grow their businesses, which distorts trends. However, in the case of Equinix, which last undertook significant M&A a year ago, incremental revenue and EBITDA growth is on a clear downward trend in absolute terms, although EBITDA is expected to pick up in the second half of the year. Equinix has a much more global footprint than Interxion and Telecity, with a presence in Asia alongside its core Americas and Europe markets, but incremental revenue and EBITDA trends just for its European business (which is a quarter bigger than Interxion s) paint an equally negative trend. Quarterly revenue additions have stayed at circa $4-6m, despite the acquisition of Ancotel in May 212, whilst incremental EBITDA growth has slowed to $1m per quarter in recent quarters. Note that currency may have had an impact (Equinix reports financials in USD that are mainly Euro and GBP in nature), whilst revenues and EBITDA are being negatively impacted by a change in accounting for one off installation revenues and the costs of moving to REIT status respectively. 1 PUBLICATION DATE: 29/1/13

11 FIGURE 18: FIGURE 19: Source (left): Equinix Capital IQ Source (right): Equinix Capital IQ Revenue EBITDA Capex est. Q2 11 Q4 11 Q2 12 Q4 12 Q2 13 Q4-13e Revenue growth Periods of M&A -Asia Tone -Ancotel EBITDA growth - Sale of DCs $75m TV Q2 11 Q4 11 Q2 12 Q4 12 Q2 13 Q4-13e FIGURE 2: FIGURE 21: 15 Revenue EBITDA 8 Revenue growth EBITDA growth 1 6 Source (left): Equinix Source (right): Equinix 5 Q2 11 Q4 11 Q2 12 Q4 12 Q Q2 11 Q4 11 Q2 12 Q4 12 Q2 13 Telecity s recent revenue and EBITDA growth trends are more complicated than Equinix s given that it made three acquisitions between August 212 and May 213; two in Finland and one in Turkey, reflecting geographic expansion. It also acquired UKGrid and Data Electronics Group in the second half of 211, as well as investing heavily in new capacity. Its revenues and EBITDA incremental half year additions are on a clear upwards trend at the present time, albeit rather M&A driven. A similar revenue bridge to that for Iomart shows that acquisitions accounted for an estimated 9% of the 23% revenue CAGR from 21 to 212, implying 14% organic growth. FIGURE 22: FIGURE 23: Source (left): Telecity Source (right): Telecity Revenue Capex EBITDA H1-1 H2-1 H1-11 H2-11 H1-12 H2-12 H Revenue growth Periods of M&A -UK Grid -DEG -Tenue -Academica EBITDA growth H1-1 H1-11 H2-11 H1-12 H2-12 H1-13 -Sadece PUBLICATION DATE: 29/1/13 11

12 revenues m Revenue per sq.m PUBLISHED: 29 OCTOBER 213 FIGURE 24: FIGURE 25: Source (left): Telecity Source (right): Telecity Tenue & Academica UK Grid FY1 organic revenues M&A Growth Organic Growth Data Electronics IFL Pro Forma FY12 revs Total UK Rest of Europe H1-1 H2-1 H1-11 H2-11 H1-12 H2-12 H1-13 DRT is one of the largest wholesale data centre providers worldwide, having added a major UK and European presence to its core North American presence through its May m acquisition of three Sentrum data centres. As the charts show, the Sentrum deal noticeably boosted incremental revenue growth for a period, but the effect has been short lived; in the most recent quarter DRT added just $5m of revenues, suggesting a return to pre-sentrum growth, despite the Sentrum deal adding three data centres with significant spare capacity. FIGURE 26: FIGURE 27: Source (left): DRT Capital IQ Source (right): DRT Capital IQ Revenue EBITDA Capex est. Q2 11 Q4 11 Q2 12 Q4 12 Q2 13 Q4-13e Revenue growth EBITDA growth Periods of M&A est. Bouygues DC Sentrum Q2 11 Q4 11 Q2 12 Q4 12 Q2 13 Q4-13e Dupont Fabros Technology In contrast, DFT has an upwards growth profile, possibly supporting its much better share price performance versus DRT. FIGURE 28: FIGURE 29: Source (left): DFT Capital IQ Source (right): DFT Capital IQ Revenue EBITDA Capex est. Q2-11 Q4-11 Q2-12 Q4-12 Q2-13 Q4-13E Revenue Growth EBITDA Growth Q2-11 Q4-11 Q2-12 Q4-12 Q2-13 Q4-13E 12 PUBLICATION DATE: 29/1/13

13 Revenue Growth PUBLISHED: 29 OCTOBER 213 Blurring models DRT is a good example of the blurring of data centre business models, with the company now selling colocation and connectivity alongside its traditional, property-like wholesale data centre space. The following chart gives a clue as to why DRT may be embarking on this strategy; as well as its annual revenue per square metre (of $76) being only one-tenth that of Telecity s (at $7,5), this has barely moved since mid-211 in contrast with circa 1% growth in equivalent unit pricing for Telecity and Rackspace (in this case revenue per MW of capacity, currently at $59k). DRT is thus now increasingly competing with some of its own major tenants (such as Equinix) for retail colocation business. Source (left): DRT, Telecity, Rackspace Source (right): Companies FIGURE 3: FIGURE 31: Q2 11 Q3 11 DRT - Annual revenue per sq m RAX - Revenue per MW Telecity - Annual revenue per sq m Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 2% 15% 1% 5% Rackspace Data Centre Iomart Hosting Equinix Telecity Interxion DRT % % 1% 2% 3% Capex+M&A/EBITDA Before we wrap up our review of public company trends, it is instructive to look at their total investment, whether organic or M&A, versus growth. Over a three year period, DRT, Telecity, Equinix, Interxion, Rackspace and Iomart have spent $5.7bn on organic growth and $4.5bn on M&A, or about 167% of their combined EBITDA generated over that period. DRT accounts for half the total and Equinix 31%, or 265% of EBITDA for DRT and 145% for Equinix. Interestingly, Equinix, Telecity and Interxion have all spent 14-15% of EBITDA over that period, with organic capex about twothirds total investment for the first two and 1% for Interxion. The managed hosters have invested far less of their EBITDA 65% for Rackspace and 84% for Iomart partly reflecting the much less capital intensive nature of their businesses. Interestingly, they have also achieved higher average growth in revenues over the same period. Although high level, the analysis shows a more attractive near term growth investment (whether organic or M&A) versus achieved revenue growth profile for the hosters than for the more data centre focussed companies, no doubt reflecting the fact that capex is more success based for hosters than being required ahead of demand for data centre providers. However, it does call into question the efficacy particularly of DRT s recent investment and M&A phase. The financial results of private UK companies with wholly or predominantly data centre and/or hosting businesses are profiled in more detail in a subsequent section but, on the whole, they paint a picture of a very vibrant sector of the economy. The 18 companies we track have an average revenue growth rate of 38% which is partly boosted by very high growth rates at data centre providers undertaking substantial capex in new facilities, such as Ark, Infinity and Gyron and by M&A by companies such as Pulsant, Sig Degrees, Adapt. However, there are also several companies achieving strong organic growth rates, in particular Node4 and UKFast, whilst Pulsant has underlying mid-teens organic growth. This faster growth translates into equally more rapid EBITDA growth for private companies, with average margins ticking up. PUBLICATION DATE: 29/1/13 13

14 FIGURE 32: FIGURE 33: 5% Public co. avg. Private co. avg. 2% Public co. avg. Private co. avg. excl Private co. avg. 4% 1% Source (left): Source (right): Excludes Ark, Infinity, Gyron 3% 2% 1% % Revenue Growth EBITDA Growth % -1% -2% Capex/Sales FCF/Sales NB. Private co. avg. excl.; excludes Ark Continuity, Gyron Internet and Infinity SDC from average. There are pockets of slow or no growth, the most notable being among those companies selling hosting services to mass markets such as consumer, SoHo and the lower end of SME; for example, Fasthosts, UK2 (whose UK business was flat, with all of the 5.5% headline growth coming outside the UK); and among public companies, the Easyspace element of Iomart. This market is more mature than other hosting markets, faces strong competition from companies such as Google, and is characterised by relentless price falls. Average capex and FCF metrics for private companies is rather distorted by very high spending by two relatively young data centre providers, Infinity and Ark, as well as NTT-backed investment by Gyron, giving average capex to sales and FCF ratios of +138% and -134% respectively. Excluding these, private companies are on average investing much less than their public counterparts (15%), with commensurately better FCF profiles (9%). Whilst institutional investor enthusiasm for public companies has cooled in recent times, as evidenced by the share price weakness, there is no end to corporate activity among private companies, attracted by the strong growth, margins and FCF on offer. We examine these in more detail in a subsequent section, but recent deals include Cinven acquiring Host Europe from Montague for 438m, LDC backing an MBO at Node 4, and Infinity raising 48m to finance its data centre build, the latter bringing in two new US investors. The Node 4 and Host Europe deals were done at low teens EBITDA multiples, not far removed from public company valuations. Admittedly there are fewer deals being done now than say in 21/11, when private equity investors backed MBOs at Attenda, Onyx, Adapt and UK2 and buy and builds with Pulsant and Six Degrees among others, but that year was the exception rather than the rule. The forthcoming wave of exits by the class of 21/11 over the next one to three years will throw up opportunities for larger private equity investors to participate in data centre and hosting, which have so far been excluded by the relatively small sizes of companies on offer. Indeed, Cinven s acquisition of Host Europe should be considered in this light. Subject to the ebbs and flows of individual company performances that gives us a detailed bottom-up view of industry trends, the broad outlook for data centre and hosting companies does not look materially different from a year ago. All of the trends that we discussed in detail in this report a year ago are as relevant today; IT outsourcing; growth in internet traffic generally; and adoption of the Cloud in particular. For example, a significant majority of data centres are still in-house/on-premise, with a continued migration to third party data centres every year as companies realise the benefits of this type of outsourcing. 14 PUBLICATION DATE: 29/1/13

15 Global data centre traffic (exabytes) avg. workloads per server PUBLISHED: 29 OCTOBER 213 Meanwhile, data centre traffic is set to treble by 217 (a 25% CAGR) according to the latest Cisco forecast, with the Cloud element growing at a 35% CAGR. An increase in workloads per server means that this demand does not translate directly into a similar increase in demand for data centre space but, whichever way one looks at it, the demand for third party data centre space continues to rise. The slowing growth profiles for the public quoted retail data centre providers highlighted above should come as no great surprise. Equinix, Interxion and Telecity have all flagged up declining capex on data centres after the spurt, with a commensurate improvement in FCF yields. Equinix is in the process of becoming a Real Estate Investment Trust (REIT), which requires over 9% of taxable profits to be distributed to shareholders, and Telecity is considering a similar move though over a slightly longer time frame. At the margin, growth may be slightly slower than some investors are hoping for; for example Equinix has now admitted the possibility of not meeting its $3bn, 215 revenue target (from $2.15bn expected for 213). There are also strategic threats to these carriers relatively unique city centre, high connectivity models both from players such as DRT wanting to move up the value chain, as well as from high quality out of town data centres benefitting from the decreasing network latency offered by today s 1Gbps networks. FIGURE 34: FIGURE 35: 1 Cloud Traditional 2 Cloud Traditional 15 Source (left): Cisco Source (right): Cisco As for hosting, higher end managed/dedicated hosting providers are clearly benefiting from IT outsourcing whilst momentum behind Cloud deployments seems to be accelerating. Companies are now deploying Cloud solutions for applications and services that would not have been dreamt of only months ago, as they become comfortable with the quality and cost advantages of Cloud provision for certain applications. Other trends such as the move to unified communications are also requiring companies to take a holistic view of their comms and IT requirements, more often than not resulting in activities previously done in-house or on-premise being moved wholly or partly into third party data centres. Even given its share price wobbles, Rackspace, along with others offering managed hosting services, achieve organic growth rates into the teens whilst generating decent FCF. It remains to be seen whether this is the end of the bull market for data centre and hosting companies, or merely a blip, but we believe it represents nervousness that comes with high valuation multiples rather than a fundamental reassessment of the outlook for DCH companies. Indeed, most of the evidence suggests that conditions still remain vibrant for most of the companies operating in the space, and possibly even better than a year ago given economic recovery and increasing Cloud momentum. PUBLICATION DATE: 29/1/13 15

16 This section reviews individual company performance, splitting the companies into public listed and UK private companies. The public listed group includes three UK companies Telecity, Iomart and Outsourcery with the remainder being US listed. Of the public companies, the proportion of revenues derived from the UK and Ireland ranges from 1% for Iomart to 49% for Telecity, 25% for Rackspace and 15% for Interxion, and nothing for CyrusOne, CoreSite and DFT. Most of the UK private companies generate all or most of their revenues in the UK; the exceptions are Host Europe (UK and Germany); Telehouse (UK, Germany and France) and UK2 (US and UK). Whilst growth trends are flattening for the public companies reviewed in the previous section, the data centre and hosting peer group is still attractive in terms of overall growth dynamics. All of the public companies are achieving double digit growth (as measured for the last 12 reported months), with EBITDA generally growing faster than revenues due to operational leverage. Iomart is enjoying the strongest headline growth, of 29% over the last 12 months, though half of this comes from acquisitions (specifically Skymarket, Melbourne Hosting and Internet Engineering, acquired between July and October 212), whilst DRT s 25% growth included the impact of the May 212 acquisition of three Sentrum data centres in the UK. Despite its travails, Rackspace still enjoys the highest organic growth rate of the group, at 22% over the last 12 months, though this is trending downwards. FIGURE 36: Currency (m) LTM Revenues growth % % 2% 4% 6% Iomart DRT Rackspace CoreSite CyrusOne Equinix Telecity Interxion 43.1 $ 1,414.4 $ 1,426.9 $ $ $ 2, Revenue EBITDA Source: Company accounts DFT $ NB CyrusOne last six months Among the carrier rich colocation providers, Equinix s 18% and Telecity s 15% revenue growth also reflects the benefits of M&A; for Equinix, the May 212 Ancotel and AsiaTone acquisitions and the September 212 sale of several small US data centres; and for Telecity, the August and November 212 Finnish deals (Tenue and Academica) and the May 213 Sadece deal. Interxion comes bottom of the pack with 13% all-organic growth, funded by considerable capex in new data centre capacity. EBITDA There is a clear differentiation in margins by type of business. The mainly or wholly wholesale focussed data centre operators such as DFT, DRT and CyrusOne are generating 5-62% EBITDA margins, followed by the retail colocation focussed operators such as Telecity, Interxion and Equinix, on 42-47%, whilst the managed hosting providers are on 35-38%. 16 PUBLICATION DATE: 29/1/13

17 FIGURE 37: Currency (m) LTM EBITDA margin % 25% 5% 75% 1% DFT DRT CyrusOne Telecity Equinix CoreSite Interxion Iomart $ $ 84.9 $ $ $ EBITDA Margin OCC Source: Company accounts Rackspace $ NB Net OCF conversion used for US-based peers; CyrusOne last six months Capex Whilst margins and operating cash flow are strong, high capex levels are a feature as companies invest in capacity and growth. The US wholesale data centre providers (Coresite, CyrusOne, DRT) are investing close to 1% of annual revenues in buying and equipping new properties whilst, as noted in the previous section, DRT has also been investing heavily in growth through M&A, for example spending 716m on data centre properties from Sentrum in the UK in May 212. FIGURE 38: Currency (m) LTM Capex margin -5% % 5% 1% CyrusOne CoreSite DRT Interxion Rackspace Equinix Telecity DFT $ $ $ $ 45.3 $ $ 87.9 Capex/Sales FCF/Sales Source: Company accounts Iomart 7.7 NB CyrusOne last six months Meanwhile, the carrier rich retail data centre providers have been cutting back capex; from 45%-58% of revenues last year to 25-3% for Equinix and Telecity and to 46% for Interxion this year. The less capital intensive hosting focussed providers are investing as low as 18% of revenues (Iomart). Overall, the FCF profile of public quoted players has changed significantly over the last year due to declining capex at Telecity, Equinix and Interxion. This time last year, only one of nine companies (Iomart) was generating positive FCF, but now the majority are in this position. PUBLICATION DATE: 29/1/13 17

18 Total capex figures only tell half the story, given that capex includes basic data centre maintenance, success driven capex on customer servers, and new capacity. For the carrier-rich data centre providers, maintenance capex ranges from 2%-3.5% of revenues, whilst customer driven capex is 3.5-6%. The majority of capex is in new capacity, at an average of 26% of revenues. Taking an approximation for managed hosting, capex is much more weighted to customer equipment, at an average of 5.3% of revenues, whilst maintenance is just 1.3% of revenues and growth capex 3.9%. This seems intuitive, given that, a managed services provider s main activity is managing equipment and services on behalf of its customers. FIGURE 39: Managed Hosting average TCY, EQ, IX average Source: Company accounts % 5% 1% 15% 2% 25% 3% 35% Maintenance Customer Growth There is, not surprisingly, a greater variation in financial performance for UK private companies than for the public companies, reflecting their different stages of development, generally smaller size and the greater flexibility afforded by being a private company to sacrifice profitability for growth. Perhaps the most noticeable difference is that many of the companies have single digit growth, in contrast to the minimum 13% growth (Interxion) of the public companies. The low (.9%) growth for Claranet reflects declining connectivity revenues offsetting growing data centre and hosting revenues; note that the not-yet published accounts for the year to June 213 will show substantially higher revenues following acquisitions of Star and Typhon towards the end of 212. Meanwhile, the single digit growth for Fasthosts and UK2 reflects their exposure to mass market hosting for consumers, SoHo and small businesses, markets which are more mature than either colocation or managed/cloud hosting for larger businesses. 1&1 Internet also targets similar markets, but grew by 18.5% in 212 off the back of extensive advertising of its MyWebsite services, with a knock on impact on EBITDA profitability. Attenda, Telehouse Europe, Onyx, UKFast and Node4 are achieving solid double digit organic revenue growth, whilst Adapt has benefited from M&A. The high headline growth from Pulsant, Six Degrees and Telehouse is M&A driven, though Telehouse and Pulsant are still achieving mid to high-teens organic growth. The numbers for Pulsant and Six Degrees (from statutory accounts) also somewhat understate their actual revenue and EBITDA run rates, of approximately 44m/ 15m for Pulsant and 7m/ 14m for Six Degrees. Control Circle s 51% growth partly reflected revenues held back from the previous year, when it reported only 4% growth. Most of the other faster growing companies are wholesale or retail data centre operators (Ark, Infinity and Gyron), benefitting from 18 PUBLICATION DATE: 29/1/13

19 strong growth after having invested heavily in data centre facilities; indeed, the 213 accounts for Infinity when published will show revenues up 4.7x to 17m! Source: Company accounts Note: growth capped at +/-6% FIGURE 4: annual revenue m Six Degrees Group 51.5 Ark Continuity Limited 4.8 Gyron Internet Ltd 13.3 Control Circle Limited 2.9 Pulsant Limited 3.4 Telehouse Europe Infinity SDC Limited 3.6 Node4 Ltd 11.1 Host Europe Group 9.6 UKFast.net Ltd &1 Internet Ltd 43.4 Adapt Group 37.6 Onyx Group 19. The Bunker Secure Hosting Limited 8.5 Attenda Ltd 35.5 UK2 Group 3.2 Fasthosts Internet Ltd 36.7 Claranet Group Limited 59.6 growth rate -6% -4% -2% % 2% 4% 6% revenue growth EBITDA growth EBITDA Private company EBITDA margins are generally lower than for public companies, due to their smaller size. The benefit of scale is demonstrated by the better margins of the two largest companies Telehouse Europe (49%) and Host Europe (35%). Telehouse s margin also reflects its retail data centre model, and is in line with Telecity, Interxion and Equinix. Likewise, Host Europe s high margin also reflects its shared hosting model, with peer Fasthosts having the fourth best EBITDA margin, at 33%. Shared hosting peer 1&1 Internet s lowly EBITDA margin reflects heavy TV advertising. PUBLICATION DATE: 29/1/13 19

20 Source: Company accounts FIGURE 41: annual EBITDA m Telehouse Europe 6.5 UKFast.net Ltd 7.9 Host Europe Group 31.9 Fasthosts Internet Ltd 12.2 Pulsant Limited 1.1 Six Degrees Group 11. The Bunker Secure Hosting Limited 1.8 Gyron Internet Ltd 2.5 Onyx Group 3.6 UK2 Group 5.5 Node4 Ltd 2. Attenda Ltd 5.7 Adapt Group 4.3 Claranet Group Limited 6.2 1&1 Internet Ltd 2.2 Control Circle Limited 1. operating cash conversion -2% % 2% 4% 6% 8% 1% 12% OCC EBITDA margin EBIT margin -2% % 2% 4% 6% 8% 1% 12% margin Compared with this time last year, UKFast has split the two larger companies due to its EBITDA margin jumping 8.4pp to 39.7% in 212. Pulsant has the next highest EBITDA margin, at 33%, achieved through a combination of colocation and managed hosting services. Most of the remaining private companies have EBITDA margins of 2% to 3% it is worth noting though that margins tend to be less stable for smaller private companies, compared with their larger public peers, both on account of their smaller size and due to one-off investments in growth. Irrespective of margins, most DCH companies achieve high conversion of EBITDA to operating cash flow, reflecting the working capital friendly nature of data centre and hosting services, with high recurring revenues and services often paid for in advance. Capex Not surprisingly, data centre focussed companies are investing the highest proportions of revenues, in particular the early stage wholesale data centre companies such as Infinity and Ark (and almost certainly Next Generation Data and Virtus if full accounts were available for them). Gyron is also investing heavily, with backing from 85% shareholder NTT Comms. Similar Japanese telco backed Telehouse (KDDI) has also been investing heavily, although its 32% capex to sales ratio in 212 is considerably lower than in previous years. Attenda s relatively heavy capex reflects investment in a new data centre operation (Datum) to replace its IFL business that was sold to Telecity in July 21. The companies with the lowest capex are those with a hosting focus (Control Circle, Fasthosts, UK2 and Host Europe), or companies such as Adapt that lease rather than build data centre facilities. Adapt s lower capex is reflected in a relatively low EBITDA margin, given higher leasing costs. 2 PUBLICATION DATE: 29/1/13

21 Source: Company accounts FIGURE 42: Capex m Infinity SDC 57.6 Ark Continuity 14.2 Gyron 32.1 Telehouse Europe 38.7 Bunker 2.7 Attenda 1.9 Pulsant 7.7 Onyx 4.3 UKFast.net 3.4 UK2 Group 4.5 Host Europe 9.6 Six Degrees 4.2 Fasthosts Internet 2.4 Control Circle.9 Node4.4 Claranet Group 1.6 < margin > -1% -5% % 5% 1% Capex/Sales FCF/Sales NB Limited to +/-1% margin In contrast to the public companies, most of the UK private companies are financing capex out of EBITDA, partly reflecting a mixture of less access to capital and generally more conservative ownermanagers. However, this also applies to the private equity backed businesses on the list. The net result is that many of the private companies are generating solid FCF margins of 2% plus in the case of the established shared hosters Fasthosts and Host Europe whilst still achieving solid revenue growth rates. The main exceptions, with negative FCF, are The Bunker and Attenda. PUBLICATION DATE: 29/1/13 21

22 The outperformance of the Megabuyte Data Centre and Hosting peer group index came to an end in early 213, following a 153% rise since December 29. The index has since shed 18%, despite generally favourable growth, margins and cash generation. Interestingly, share price performance does not correlate to market positioning. For example, the best and worst performing companies Iomart and Rackspace both provide managed hosting services. Likewise, wholesale data centre providers Coresite and DFT are strong, in contrast to DRT, whilst the declines of retail colo providers Equinix and Telecity contrast with Interxion s positive performance. FIGURE 43: 2,6 DCH Index MBTW All-Share FTSE All-Share NASDAQ ICT Services 2,4 2,2 2, 1,8 1,6 1,4 1,2 Source: Capital IQ 1, Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 N.B. DCH Index includes: Coresite, CyrusOne, Digital Realty Trust, Dupont Fabros Technology, Equinix, Interxion, Iomart, Outsourcery, Rackspace, Telecity The Megabuyte DCH index comprises three UK companies: Iomart, Telecity and Outsourcery; and seven North American companies: Coresite, CyrusOne, DRT, DFT, Equinix, Interxion and Rackspace. The DCH index has fallen 4.7% over the last year, underperforming the Megabuyte Taylor Wessing All-Share index (+39%), the Megabuyte ICT Services index (+52%), NASDAQ (+3%) and FTSE All-Share (+16%). Only four of the ten quoted companies have experienced share price increases over the last year with only two (Iomart and Coresite) into double-digits (+34% and 32% respectively). The three serial underperformers are Rackspace, DRT and Telecity, with declines of 22%, 13% and 11%, followed by Equinix (-9%) and Outsourcery (-7% since its May 213 IPO). Iomart has been the best performing stock, up 33.7% over one year, and indeed the shares have increased 5.7x since December 29, compared with growth in revenues, EBITDA and profit before tax of 135%, 43% and 97% respectively. However, the shares have fallen 11.9% over the last month. Talking of fading momentum, Interxion, whose shares rose 5.4% over the year, has seen its shares fall 12.6% over the last quarter. Telecity s share price peaked at 124p in July 213. However, the shares are down 1.7% over the last year due to slowing organic growth. Looking longer term, a share price of 826p is still up 4% over two years, and up 2.2x since December 29. US bellwethers DRT and Rackspace have been the highest profile share price fallers over the last year. Rackspace s weakness stems from growth concerns, attributed to its transition from legacy Cloud to OpenStack, a weaker enterprise performance, and price competition from AWS. That said, Rackspace s shares have recovered 15.6% over the last three months as more recent results came in towards the top end of (reduced) expectations. 22 PUBLICATION DATE: 29/1/13

23 current year valuation multiples PUBLISHED: 29 OCTOBER 213 FIGURE 44: Share price Mkt Cap (m) return -25% % 25% 5% Iomart Coresite $ DFT $ ,653.1 Interxion $ ,612.3 CyrusOne $ Outsourcery Equinix $ ,242.7 Telecity 8.3 1, month 1 month 3 month Source: Capital IQ DRT $ ,223.4 Rackspace $ 5.4 7,6.6 N.B. Outsourcery 12 month return equal to performance since May 213 IPO, CyrusOne since January 213 IPO Declining share prices have had a knock on impact on sector valuations, with all companies with the exception of Iomart experiencing declining multiples. The biggest decline has unsurprisingly been suffered by Rackspace, which attained a 2x EBITDA multiple at its share price peak but which is now at about average for the group, at circa 12x current year. The DCH peer group has long been characterised by a relatively narrow range of EBITDA valuation multiples, despite the very different wholesale data centre, retail colo and managed hosting business models. Despite the share price declines, DCH companies still trade at a relative premium, for example to the 1.9x EBITDA of all Megabuyte ICT companies and 11.3x for Software companies. FIGURE 45: 6 EV/EBITDA (previous year) PE (previous year) DCH EV/EBITDA EV/EBITDA PE DCH PE Source: Capital IQ DRT Iomart Rackspace DFT Telecity Coresite Equinix Interxion CyrusOne PUBLICATION DATE: 29/1/13 23

24 transaction value (exc. conditional earnouts) m PUBLISHED: 29 OCTOBER 213 Data centre and hosting continues to be a hot bed for M&A, driven by two key themes: Data centre focussed companies using M&A as a route to obtaining capacity more quickly than building data centre facilities, and Companies consolidating smaller players to add new or complementary skills and/or data centre assets, in order to attain scale. Telecity has been the main exponent of the first theme, acquiring IFL ( 21m), UK Grid ( 12m) and Data Electronics Group ( 88m) to enhance UK/Ireland capacity during 21 and 211, buying Tenue ( 4m) and Academica ( 22m) in Autumn 212 to establish a foothold in Finland, and most recently establishing a presence in Turkey through the May 213 Sadece acquisition ( 29m). A similar driver with both the Finnish and Turkey deals is to capture new traffic flows, from Russia and the Middle East respectively. Equinix has undertaken similar deals - AsiaTone ($23m, Hong Kong, Shanghai and Singapore) and Ancotel ($86m, Germany) - whilst, like Telecity, is also spending heavily on organic capacity additions; it also recouped cash by selling 16 sub-scale US data centres for $75m in September 212. As we noted above, M&A has consumed about a third of Telecity s and Equinix s total growth investment over the last three years. Private peer Telehouse has undertaken similar cross border M&A, buying Frankfurt-based Databurg for 52m in January 212. Overseas interest in UK data centre assets is a recurrent theme, exemplified by DRT s 716m acquisition of three Sentrum UK data centres in May 212, which boosted its UK capacity by 5%, and NTT Coms acquisition of Gyron in June 212. FIGURE 46: Claranet Group- Star Technology Services Pulsant - ScoLocate Telecity Group- Sadece Iomart Group- Backup Technology Source: Telecity Group - Academica Claranet Group- Typhon Six Degrees- BIS Iomart Group - Redstation Adapt- Sleek. Oct-12 Dec-12 Jan-13 Mar-13 May-13 Jun-13 Aug-13 Oct-13 Nov-13 There is also plenty of hosting focussed activity, the most notable of the last year being Claranet s 55m acquisition of Star Technology to create a major UK and European player. In a similar vein, 1&1 Internet (the broader European group rather than just the UK subsidiary that we review here) acquired Arsys in Spain for 14m in August 213. Most hosting M&A has, however, been smaller in size. Iomart has made nine acquisitions in the last three years of hosting companies that bring specialist skills and/or customer segments, and help fill 24 PUBLICATION DATE: 29/1/13

25 Transaction Value m trailing EV/Sales PUBLISHED: 29 OCTOBER 213 its data centres, with two in September/October this year. Buy and builds have also been active, particularly Pulsant, a combination of four companies, and Six Degrees, whose 13 constituent companies comprise at least a third with data centre and/or hosting capabilities, though both have made only one deal each in the last 12 months. Host Europe has also been an active acquirer, though its three deals can best be described as a bolt on, rather than being transformative. We anticipate its M&A ambitions shifting towards larger targets following a recent change in private equity ownership (see below). In general, acquisitions of data centre focussed companies tend to be at or above prevailing public market valuation multiples, whilst those of hosting focussed companies are more often than not at below market multiples, as highlighted by the various Iomart deals. Data centres and hosting businesses have been a magnet for private equity investors, attracted by excellent growth and cash generation, as well as being an obvious way for such investors to play the Cloud (and to pay a Cloud multiple). Some have been particularly foresighted, for example 3i and Oakhill, who took Telecity private in 25, acquired Redbus and the European assets of Globix, before re-floating the business in 27. Other significant transactions included two swaps of private equity owners for Host Europe in under three years, from Oakley to Montagu in September 21 for 222m and then to Cinven for 438m in July 213. There was also a spate of activity in 211 from mid-market private equity investors, the MBOs of Onyx (Isis), Attenda (Darwin), Adapt Group (Lyceum) and UK2 (LDC), and support for buy and builds with a significant data centre or hosting focus, including Pulsant (Bridgepoint) and Six Degrees Group (Penta). We would not be surprised to see the more developed of these businesses considering their exit options in the next year or so, to beat the rush! Data centres have also, not surprisingly, received considerable attention from property-focussed private equity investors, attracted by the bricks and mortar characteristics and predictable yields their focus has been at the wholesale end, where contracts terms are longest. Examples in the UK include Ark Continuity (backed by Real Estate Venture Capital Partners LLP) and Virtus (backed by Brockton Capital), whilst Infinity SDC this year raised 48m from its existing UK investors as well as from two new US investors (Wood Creek and Caxton Alternative Management). Source (left): Company announcements Source (right): Company announcements FIGURE 47: FIGURE 48: LDC- Node4 5m Cinven- Host Europe 438m Infinity fundraise 48m May-13 Jun-13 Jul-13 Aug-13 Oct-13 14B Outsourcery Jan-13 Mar-13 May-13 Jul-13 Oct-13 PUBLICATION DATE: 29/1/13 25

26 Supporting Data 27 Company Profile PUBLICATION DATE: 29/1/13

27 TABLE 1: TABLE 2: TABLE 3: TABLE 4: TABLE 5: TABLE 6: TABLE 7: TABLE 8: TABLE 9: PUBLICATION DATE: 29/1/13 27

28 TABLE 1: returns Currency Share price Mkt Cap (m) 1 month 3 months 12 months Coresite $ % 4.3% 32.% CyrusOne $ % -3.4% -2.2% DFT $ % 4.8% 6.9% DRT $ % -12.8% -13.2% Equinix $ % -14.% -9.2% Interxion $ % -12.6% 5.4% Iomart % 2.4% 33.7% Outsourcery % -2.1% -7.1% Rackspace $ % 15.6% -22.2% Telecity % -16.9% -1.7% Source: Capital IQ DCH Index -2.9% -4.8% -4.7% ICT Services Sector 4.4% 1.6% 51.6% NASDAQ Index % 8.9% 29.9% FTSE All-Share % 1.2% 15.6% MBTW All-Share % 6.5% 38.7% TABLE 2: EV/Revenue EV/EBITDA PER Div Yield % Coresite % CyrusOne % DFT % DRT % Equinix % Interxion Iomart % Outsourcery 6.5 Rackspace Telecity % Source: Capital IQ DCH Index % ICT Services Sector % Premium/Discount 76% 11% 83% -2.% Megabuyte Universe % Premium/Discount 75% 9% 92% -1.8% 28 PUBLICATION DATE: 29/1/13

29 TABLE 3: Source: Company accounts Year Currency End Period Revenue EBITDA OCF Capex Coresite $ Dec Q CyrusOne $ Dec Q DRT $ Dec Q DFT $ Dec Q Equinix Dec Q Interxion Dec Q Iomart $ Mar FY Rackspace Dec Q Telecity $ Dec H TABLE 4: Source: Company accounts Revenue EBITDA EBITDA Capex FCF Growth Growth Margin OCC to Revenues to Revenues Coresite 17.8% 28.5% 44.9% 87.% 7.8% -25.8% CyrusOne 16.6% 9.7% 5.4% 63.4% 93.% -42.7% DRT 25.1% 25.1% 59.5% 69.8% 68.2% -8.7% DFT 12.7% 13.% 64.% 73.8% 24.3% 39.7% Equinix 15.5% 14.4% 46.5% 66.5% 27.7% 18.8% Interxion 13.1% 16.% 42.3% 84.1% 46.3% -4.1% Iomart 28.6% 47.6% 38.3% 89.6% 18.% 2.3% Rackspace 22.2% 24.1% 35.% 88.2% 28.4% 6.6% Telecity 15.1% 17.8% 47.3% 97.8% 24.6% 22.7% PUBLICATION DATE: 29/1/13 29

30 Source: Company accounts TABLE 5: Year Revenue EBITDA FCF Net Cash End Period m m m m 1&1 Internet Ltd Dec FY Adapt Group Jun FY Ark Continuity Limited Apr FY Attenda Ltd Dec FY Claranet Group Limited Jun FY Control Circle Limited Sept FY Fasthosts Internet Ltd Dec FY Gyron Internet Ltd Mar FY Host Europe Group Dec FY Infinity SDC Limited Mar FY Node4 Ltd Mar FY Onyx Group Dec FY Pulsant Limited Dec FY Six Degrees Group Mar FY Telehouse Europe Dec FY The Bunker Secure Hosting Dec FY UK2 Group Dec FY UKFast.net Ltd Dec FY TABLE 6: Source: Company accounts Revenue EBITDA EBIT EBITDA Growth Growth Margin Margin OCC 1&1 Internet Ltd 18.5% -56.1% 4.9% 5.% Adapt Group 18.3% 41.5% 11.3% Ark Continuity Limited 136.3% Attenda Ltd 12.6% -4.5% 6.8% 16.1% 98.3% Claranet Group.9% -1.7% 3.8% 1.5% 124.% Control Circle Limited 51.4% 398.3%.4% 4.8% 117.9% Fasthosts Internet Ltd 1.4% -7.3% 22.3% 33.1% Gyron Internet Ltd 52.4% 6.1% 1.7% 19.1% 252.% Host Europe Group 24.5% 16.7% 26.5% 35.3% 12.3% Infinity SDC Limited 3.1% Node4 Ltd 26.5% -2.7% 11.2% 17.7% 88.2% Onyx Group 17.% 27.% 1.7% 19.1% 81.9% Pulsant Limited 5.8% 4.8% 26.1% 33.1% 118.2% Six Degrees Group 155.2% 19.7% 19.% 21.3% 18.1% Telehouse Europe 36.1% 37.2% 33.5% 49.4% 97.% The Bunker Secure Hosting 14.6%.9% 4.6% 2.6% 78.7% UK2 Group 5.5% 5.5% 2.5% 18.4% 83.1% UKFast.net Ltd 24.% 57.4% 28.5% 39.9% 13.7% 3 PUBLICATION DATE: 29/1/13

31 TABLE 7: TV % Implied trailing multiple Date Target Selling party Acquirer m acquired EV m EV/Sales EV/EBITDA Databurg GmbH, KRE GmbH Telehouse Europe 5.4 1% x O2 Mobile Services division Outsourcery Group Daisy Group 3. 1% RedCoruna Host Europe 1.2 1% Ultraspeed Six Degrees 1.6 1% Telstra Six Degrees 3.6 1% elinia Adapt 13. 1% x Datahop Six Degrees 3.8 1% Serverstream Six Degrees 5. 1% Firstserv Six Degrees 1.2 1% Mesh Digital Host Europe. 1% Gyron Internet NetBenefit division Group NBT NTT Communications % x 11.x PEER1 Network Enterprises % x Skymarket Iomart Group.8 1%.8.8x Cloud Computing Centre Six Degrees 9.4 1% x 23.6x Tenue Telecity Group 3.7 1% Aurora Networks Six Degrees 6.5 1% Melbourne Server Hosting Iomart Group 6.4 1% x 1.2x Internet Engineering Iomart Group 1.2 1% Academica Telecity Group % Star Technology Services Claranet Group 55. 1% x 13.1x Typhon Claranet Group 3.4 1% ScoLocate Pulsant 26. 1% x 9.6x BIS Six Degrees % x 6.1x Sadece Telecity Group 29. 1% Sleek Adapt 5.5 1% UK division BurstNET UKFast.net Certain assets Outsourcery Group Source: Company announcements Redstation Iomart Group 6.6 1% x 2.8x Backup Technology Iomart Group 23. 1% x 9.6x PUBLICATION DATE: 29/1/13 31

32 TABLE 8: Additional capital raised % Implied trailing multiple Date Type Investor Target Selling party m acquired EV m EV/Sales EV/EBITDA Source: Company announcements MBO LDC Node4 1% x 25.x SBO Cinven GC Multiple Investors 1 Host Europe Infinity SDC Montagu Private Equity 1% NB 1 Infinity multiple investors include: RIT Capital Partners, Lansdowne Capital, Caxton Alternative Management LP and Wood Creek Capital Management LLC Source: Company announcements Company accounts TABLE 9: Transaction Mkt Cap Amount Trailing valuations Type Date issue price raised EV/Revenue EV/EBITDA PE IPO Outsourcery 34.6m 12.7m 12x (e) PUBLICATION DATE: 29/1/13

33 PUBLICATION DATE: 29/1/13 33

34 1&1 Internet Limited is the UK subsidiary of the multinational 1&1 group, owned by German-based and quoted United Internet. 1&1 Internet specialises in the provision of web hosting and domain name services in the UK, primarily to smaller businesses and consumers. PEER GROUP: Data Centre & Hosting Services TURNOVER: 36,594,81 OWNERSHIP: Private Company 1-14 Bath Road,Slough SL1 3SA Tel: Megabuyte View 1&1 Internet has established itself as one of the leading providers of shared hosting and related services ( , security, website builder) to individuals and small and medium sized businesses in Europe. The UK subsidiary (alongside its completely independent sister company Fasthosts see separate profile) is likewise a leading market player, leveraging the Group s R&D and extensive product portfolio. CEO: Robert Hoffman Since December 212 CFO: Markus Huhn Since - 11 OCT 13 1&1 Internet UK seeing benefit of MyWebsite but at a price 2 AUG 13 United Internet tests Spanish waters with 14m Arsys deal 18 JUL 13 United Internet nabs 25% of Open-Xchange 7 JUN 13 Delving into the Fasthosts and 1&1 Internet UK relationship Profit and Loss FY9 FY1 FY11 FY12 Revenue Gross Profit EBITDA Operating Profit Profit before tax Net income Revenue Growth % Gross Margin % EBITDA Margin % Latest M&A Activity Date Party Company TV ( m) EV ( m) No recent M&A activity, but parent acquired Arsys (Spain) for 14m in August 213 Subsidiary of United Internet Private Equity Activity Date Party Investor EV ( m) No recent Private Equity activity 4% 3% 2% 1% % EBITDA margin Revenues, rhs EBITDA, rhs m 34 PUBLICATION DATE: 29/1/13

35 Adapt Group provides managed IT and network services to 1,1 corporate customers in the UK. PEER GROUP: Data Centre & Hosting Services TURNOVER: 37,638, OWNERSHIP: Private Company 35 New Broad Street,London EC2M 1NH Tel: Megabuyte View Adapt Group s ambitions were given a boost with the April 212 acquisition of elinia for 13m, followed by the June 213 Sleek deal, taking revenues to 5m and putting the company on a growth track. This takes managed hosting to 5% of run rate revenues, with IT outsourcing (33%) and managed network services the remainder. CEO: Stewart Smythe Since March 212 CFO: Jat Brainch Since January JUN 13 Adapt's Sleek deal takes revenues over 5m 3 DEC 12 Adapt Group fleshes out life post elinia acquisition 17 APR 12 Adapt makes first post-mbo deal with elinia acquisition Profit and Loss FY9p FY1 FY11 FY12 Revenue Gross Profit EBITDA Operating Profit Profit before tax Net income Revenue Growth % Gross Margin % EBITDA Margin % JUN 12 Adapt Group adapting well to life after MBO Latest M&A Activity Date Party Company TV ( m) EV ( m) 26/6/13 Buyer Sleek /4/12 Buyer elinia Cash Flow FY9 FY1 FY11 FY12 Op. Cash Flow Free Cash Flow CAPEX Acquisitions Net Cash Flow Shares Issued... - Net Cash Private Equity Activity Date Party Investor EV ( m) 29/9/11 MBO Lyceum Capital 3 Lyceum Capital 15% 1% 5% EBITDA margin Revenues, rhs EBITDA, rhs m % PUBLICATION DATE: 29/1/13 35

36 m PUBLISHED: 29 OCTOBER 213 Ark Continuity is a property VC-backed developer and operator of a substantial data centre campus in Wiltshire. PEER GROUP: Data Centre & Hosting Services TURNOVER: 4,764, OWNERSHIP: Private Company Spring Park, Hartham Park, Corsham SN13 9GB Tel: Megabuyte View Ark Continuity is a relatively young, property VC-backed, wholesale data centre company that has invested 76m in a state of the art facility in Wiltshire. Coming relatively late to the game, it remains to be seen whether the technical properties of the centre will outweigh its out of London location and relative lack of connectivity, but just 5m of revenues in the year to April 212 suggest a long way to go to recoup the investment. Chairman: Jeffery Thomas Since November 212 CEO: Huw Owen Since November 212 CFO: Rick Mitchel Since February 28 4 JAN 13 Ark revenues up threefold but commercial return still some way off Profit and Loss Dec9 Apr11 Apr12 Revenue Gross Profit EBITDA Operating Profit Profit before tax Net income JAN 12 Ark battles for revenues in flood of data centre space Revenue Growth % Gross Margin % EBITDA Margin % Latest M&A Activity Date Party Company TV ( m) EV ( m) No recent M&A activity Private Equity Activity Date Party Investor EV ( m) 1/1/8 MBO REVCAP - Cash Flow Dec9 Apr11 Apr12 Op. Cash Flow Free Cash Flow CAPEX Acquisitions... Net Cash Flow Shares Issued.... Net Cash Real Estate Venture Capital Partners Revenues EBITDA 29/ PUBLICATION DATE: 29/1/13

37 Attenda is a managed services supplier focussed on application outsourcing PEER GROUP: Data Centre & Hosting Services TURNOVER: 35,487, OWNERSHIP: Private Company One London Road, Staines, Middlesex Tel: Megabuyte View Attenda is one of the few pure play application services companies within the Megabuyte universe, and deserving of the Cloud description. Also, having sold its colocation capability to realise cash for the previous PE backer, Attenda is now recreating data centre facilities through a new venture, Datum. Chairman: Simon Downing Since October 212 CEO: Mark Fowle Since July 1997 CFO: Paul Howard Since - 6 JUN 13 Rapid evolution for Attenda in Darwin era 2 JUL 12 Attenda recreates hosting capability with Datum launch 25 JUN 12 Attenda accounts reveal new capital structure and an attractive purchase price for Darwin 2 FEB 12 Accelerating growth for a refocused Attenda Latest M&A Activity Date Party Company TV ( m) EV ( m) 3/7/1 Seller Internet Facilitators Limited Private Equity Activity Date Party Investor EV ( m) 21/8/11 SBO Darwin Private Equity 5 29/7/2 GC MC Partners 9. Profit and Loss FY9 FY1 FY11 FY12 Revenue Gross Profit EBITDA Operating Profit Profit before tax Net income Revenue Growth % Gross Margin % EBITDA Margin % Cash Flow FY9 FY1 FY11 FY12 Op. Cash Flow Free Cash Flow CAPEX Acquisitions Net Cash Flow Shares Issued Net Cash Darwin Private Equity 25% 2% 15% 1% 5% % EBITDA margin Revenues, rhs EBITDA, rhs m PUBLICATION DATE: 29/1/13 37

38 Claranet Group Ltd is the largest operating subsidiary of Claranet Group, a pan-european provider of managed network and hosting services. PEER GROUP: Data Centre & Hosting Services TURNOVER: 59,642, OWNERSHIP: Private Company 21 Southampton Row, London WC1B 5HA Tel: Megabuyte View Claranet was already one of the UK s larger mid market-focussed private managed hosting and networking services providers, but its 55m acquisition of Star Technology transforms the combined group into an 85m UK and 12m European player, with and an extensive product set, covering networking, hosting, applications and unified comms. CEO: Charles Nasser Since July 2 CFO: Nigel Fairhurst Since - CMO: Olivier Beaudet Since - 3 MAY 213 Accounts reveal higher multiples paid for Ubiquisys and Star 19 DEC 212 Claranet follows Star with Typhon deal 3 DEC 212 ABRY follows Claranet investment with Basefarm managed services deal Profit and Loss FY9 FY1 FY11 FY12 Revenue Gross Profit EBITDA Operating Profit Profit before tax Net income Revenue Growth % Gross Margin % EBITDA Margin % MAR 213 Claranet on application hosting and the European question Latest M&A Activity Date Party Company TV ( m) EV ( m) 17/12/12 Buyer Typhon /11/12 Buyer Star Technology Services Private Equity Activity Date Party Investor EV ( m) 26/11/12 GC ABRY Partners, Ares Capital, RBS 55 Cash Flow FY9 FY1 FY11 FY12 Op. Cash Flow Free Cash Flow CAPEX Acquisitions.... Net Cash Flow Shares Issued.... Net Cash Charles Nasser 15% 1% 5% EBITDA margin Revenues, rhs EBITDA, rhs m % PUBLICATION DATE: 29/1/13

39 Connexions4London (C4L) is a private UK company offering colocation, connectivity, Cloud and communications services to UK SME, public sector organisations and other service providers. PEER GROUP: Data Centre & Hosting Services TURNOVER: 1,324,8 OWNERSHIP: Private Company County Gates House, 3 Poole Road, Westbourne Poole BH12 1AZ Tel: Megabuyte View C4L plays a Cloud picks and shovels role, providing data centre connectivity to over 1 UK data centres, as well providing colocation and hosting services through its own data centre capabilities. Chairman: Matt Hawkins Since July 2 CEO: Simon Mewett Since August SEP 213 C4L connecting the dots Profit and Loss FY11 FY12 Revenue Gross Profit EBITDA.6.8 Operating Profit.2.3 Profit before tax.1.1 Net income.1.1 Latest M&A Activity Date Party Company TV ( m) EV ( m) No recent M&A activity Revenue Growth % Gross Margin % EBITDA Margin % Private Equity Activity Date Party Investor EV ( m) No recent Private Equity activity EBITDA margin Revenues, rhs EBITDA, rhs 1% 15 8% 1 6% 4% 2% % m Cash Flow FY11 FY12 Op. Cash Flow Free Cash Flow.7.3 CAPEX Acquisitions.. Net Cash Flow Shares Issued.. Net Cash Matthew Hawkins PUBLICATION DATE: 29/1/13 39

40 Control Circle is a UK-based provider of bespoke end to end managed hosting services to UK and overseas companies. PEER GROUP: Data Centre & Hosting Services TURNOVER: 2,911,177 OWNERSHIP: Private Company 2 Hertsmere Road, London E14 4AB Tel: Megabuyte View Control Circle is a managed hosting specialist, supporting the mission critical online presence of major brands such as RightMove, Monitise and Betfair, and punching well above its weight. Rapid growth attracted investment from Scottish Equity Partners in 21. Chairman: Colin Tenwick Since February 213 CEO: Carmen Carey Since February 211 CFO: Simon Hancock Since April 25 7 JAN 213 Control Circle returns to form 28 NOV 212 Control Circle returns to strong growth 18 JUN 212 Control Circle adds Hansford Profit and Loss FY9 FY1 FY11 FY12 Revenue Gross Profit EBITDA Operating Profit Profit before tax Net income Revenue Growth % Gross Margin % EBITDA Margin % NOV 211 Control Circle manages another 25% growth in FY1/11 8 MAR 211 Control Circle's ever increasing radius Latest M&A Activity Date Party Company TV ( m) EV ( m) No recent M&A activity Private Equity Activity Date Party Investor EV ( m) 18/3/1 GC Scottish Equity Partners 6. Cash Flow FY9 FY1 FY11 FY12 Op. Cash Flow Free Cash Flow CAPEX Acquisitions.... Net Cash Flow Shares Issued Net Cash Management Scottish Equity Partners 1% 8% 6% 4% 2% % EBITDA margin Revenues, rhs EBITDA, rhs m 4 PUBLICATION DATE: 29/1/13

41 Fasthosts Internet Limited is a fully owned subsidiary of the German headquartered and listed United Internet AG, providing shared and dedicated hosting and domain name services to SMEs, mainly in the UK. PEER GROUP: Data Centre & Hosting Services TURNOVER: 36,696, OWNERSHIP: Private Company Discovery House, 154 Southgate Street, Gloucseter GL1 2EX Tel: Megabuyte View Fasthosts is a sister company to, but operates entirely independent of, 1&1 Internet UK (see separate profile). It specialises in shared and dedicated hosting and related services (for example ), focussing primarily on SoHo/SMEs and selling through reseller channels (for example web agencies). CFO: Ian Stephens Since January 21 Executive Director: Simon Yeoman Since January AUG 213 United Internet tests Spanish waters with 14m Arsys deal 18 JUL 213 United Internet nabs 25% of Open-Xchange 7 JUN 213 Delving into the Fasthosts and 1&1 Internet UK relationship Profit and Loss FY9 FY1 FY11 FY12 Revenue Gross Profit EBITDA Operating Profit Profit before tax Net income Revenue Growth % Gross Margin % EBITDA Margin % OCT 212 United Internet subsidiaries Fasthosts and 1&1 running neck and neck in UK hosting Latest M&A Activity Date Party Company TV ( m) EV ( m) No recent M&A activity Private Equity Activity Date Party Investor EV ( m) No recent Private Equity activity Cash Flow FY9 FY1 FY11 FY12 Op. Cash Flow Free Cash Flow CAPEX Acquisitions Net Cash Flow Shares Issued Net Cash Subsidiary of United Internet 5% 4% 3% 2% 1% % EBITDA margin Revenues, rhs EBITDA, rhs m PUBLICATION DATE: 29/1/13 41

42 Gyron Internet provides data centre services from two proprietary centres in Hemel Hempstead and one in Slough. NTT Comms is an 85% shareholder PEER GROUP: Data Centre & Hosting Services TURNOVER: 13,35,9 OWNERSHIP: Private Company 3 Centro, Boundary Way Hemel Hempstead HP2 7SU Tel: www1.uk.gyron.net Megabuyte View Gyron is one of a new breed of UK-focussed data centre companies offering high quality colocation services, that has achieved rapid growth and decent levels of profitability and cash flow. NTT Coms acquired an 85% stake in 212, and has since funded considerable capex in new data centre facilities. CEO: Robin Balen Since March 2 COO: Ben Miller Since January 29 8 AUG 213 Gyron accounts reveal strength of NTT commitment 8 AUG 213 Gyron Internet turns in 5% growth at stable underlying EBITDA margins 21 JUN 212 Gyron Internet benefits from multinational players seeking growth through acquisition Latest M&A Activity Date Party Company TV ( m) EV ( m) No recent M&A activity Private Equity Activity Date Party Investor EV ( m) 1/6/12 M&A NTT Communications 22 Profit and Loss FY1 FY11 FY12 FY13 Revenue Gross Profit EBITDA Operating Profit Profit before tax Net income Revenue Growth % Gross Margin % EBITDA Margin % Cash Flow FY1 FY11 FY12 FY13 Op. Cash Flow Free Cash Flow CAPEX Acquisitions.... Net Cash Flow Shares Issued Net Cash Robin Balen NTT Communications 3% EBITDA margin Revenues, rhs EBITDA, rhs 15 2% 1% 1 5 m % PUBLICATION DATE: 29/1/13

43 The Host Europe Group provides hosting services to SMEs in the UK and Germany through its Webfusion and Host Europe brands. PEER GROUP: Data Centre & Hosting Services TURNOVER: 9,555, OWNERSHIP: Private Company 5 Roundwood Avenue, Stockley Park, Uxbridge UB11 1FF Megabuyte View Host Europe is one of the larger private companies in the data centre and hosting peer group, with a substantial presence in the UK and Germany. It offers both shared and managed hosting services for SMEs and corporates. The company has changed private equity owners twice in three years. CEO: Thomas Vollrath Since October 21 Executive Director: Patrick Pulvermueller Since - Executive Director: Tobias Mohr Since October 21 3 OCT 213 Host Europe achieves 13% organic growth in AUG 213 United Internet tests Spanish waters with 14m Arsys dea 1 JUL 213 Montagu rumoured to be considering Host Europe exit Profit and Loss FY9 FY1 FY11 FY12 Revenue Gross Profit EBITDA Operating Profit Profit before tax Net income Revenue Growth % Gross Margin % EBITDA Margin % JUL 213 Host Europe finds new home with Cinven Latest M&A Activity Date Party Company TV ( m) EV ( m) 16/5/12 Buyer Mesh Digital /1/12 Buyer RedCoruna /8/11 Buyer Heart Internet Private Equity Activity Date Party Investor EV ( m) 19/7/13 SBO Cinven /9/1 MBO Montagu PE /3/8 MBO Oakley Capital 11 Cash Flow FY9 FY1 FY11 FY12 Op. Cash Flow Free Cash Flow CAPEX Acquisitions Net Cash Flow Shares Issued. -.. Net Cash Cinven 5% 4% 3% 2% 1% EBITDA margin Revenues, rhs EBITDA, rhs m % PUBLICATION DATE: 29/1/13 43

44 m PUBLISHED: 29 OCTOBER 213 Infinity is a provider of wholesale data centre space in the South East of England. PEER GROUP: Data Centre & Hosting Services TURNOVER: 3,619, OWNERSHIP: Private Company Vega House, Opal Drive, Fox Milne, Milton Keynes, MK15 DF Tel: Megabuyte View Infinity SDC is a relatively young provider of data centre space, primarily in London, with big ambitions. It has raised 1m in the last year, and will take over the ex-olympics icity media centre. Accounts for the year to March 213 will show a 5x jump in revenues to 17m. CEO: Stuart Sutton Since June 211 CFO: John Thompson Since July 28 CMO: Nigel Stevens Since December SEP 213 Infinity SDC: London Calling 11 APR 213 Infinity borrows bigtime for London data centres 9 JAN 213 Infinity accounts tell less than half the story Profit and Loss FY1 FY11 FY12 Revenue Gross Profit EBITDA Operating Profit Profit before tax Net income Revenue Growth % Gross Margin % EBITDA Margin % 31 JAN 212 CWW deal gives Infinity data centre aspirations a boost Latest M&A Activity Date Party Company TV ( m) EV ( m) No recent M&A activity Cash Flow FY1 FY11 FY12 Op. Cash Flow Free Cash Flow CAPEX Acquisitions... Net Cash Flow Shares Issued Net Cash Private Equity Activity Date Party Investor EV ( m) 24/9/13 GC RIT Capital Partners, Lansdowne Capital and others 1/11/1 GC RIT Capital Partners, Lansdowne Capital Caxton Alternative Management Lansdowne Capital RIT Capital Partners Wood Creek Capital Management 5. Revenues EBITDA PUBLICATION DATE: 29/1/13

45 Share Price ( ) PUBLISHED: 29 OCTOBER 213 Iomart is a UK based hosting and managed services company> PEER GROUP: Data Centre & Hosting Services TURNOVER: 43,59, OWNERSHIP: Public Company LISTED IN: LSE AIM MKT CAP: 325m Lister Pavilion, Kelvin Campus, West of Scotland Science Park, Glasgow G2 SP Tel: Megabuyte View As one of only two UK listed DCH companies of any size (alongside Telecity), Iomart enjoys a high profile, matched by strong performance. Since divesting its ufindus web listing business to BT in 28 and reinvesting the 2m proceeds in data centres, the company has established itself as a strong managed hosting provider. CEO: Angus Macsween Since February 29 CFO: Richard Logan Since July 28 Executive Director: Sarah Haran Since March 2 5 SEP 213 Iomart acquires Redstation for a well-priced 2.8x EBITDA 29 MAY 213 Iomart PBT up tenfold in three years 26 MAR 213 Iomart and GB Group flying high Profit and Loss FY1 FY11 FY12 FY13 Revenue Gross Profit EBITDA Operating Profit Profit before tax Net income Revenue Growth % Gross Margin % EBITDA Margin % JUN 213 Assessing Iomart's five year record Latest M&A Activity Date Party Company TV ( m) EV ( m) 1/1/13 Buyer Backup Technology /9/13 Buyer Redstation /1/12 Buyer Internet Engineering Latest Fundraising Activity Date Type Amount Raised m No recent fundraising activity Cash Flow FY1 FY11 FY12 FY13 Op. Cash Flow Free Cash Flow CAPEX Acquisitions Net Cash Flow Shares Issued Net Cash Revenue 55.3 EV/Revenue 5.2 EBITDA 22.2 EV/EBITDA 12.9 PBT 14. P/E Ratio 26.3 EPS 1.3 Div Yield %.6 DPS Oct-12 Feb-13 Jun-13 Oct-13 Angus MacSween Majedie Asset Management Liontrust Investment Partners Liontrust Asset Management Old Mutual Global Investors 16.% stake 7.6% stake 5.5% stake 5.5% stake 5.1% stake PUBLICATION DATE: 29/1/13 45

46 NGD is fitting out an unused LG Electronics plant in South Wales that will ultimately become one of Europe's biggest data centres. PEER GROUP: Data Centre & Hosting Services TURNOVER: 1,9, OWNERSHIP: Private Company Sheen Lane House 254 Upper Richmond Rd West London SW14 8AG Tel: Megabuyte View Next Generation Data provides wholesale data centre services from a substantial ex-manufacturing plant in South Wales. Whilst the outlook for out of London wholesale data centres is mixed, NGD gained access to the building on reasonably favourable terms, avoiding the substantial capex that some peers are incurring. Chairman: Simon Taylor Since October 27 CEO: Nick Razey Since October 27 CFO: Robert Edwards Since - 3 APR 213 Next Generation Data progressing slowly but surely Profit and Loss FY8 FY9 FY1 FY11 Revenue Gross Profit EBITDA Operating Profit Profit before tax Net income MAR 212 Next Generation Data secures maiden profit 15 JUN 211 Next Generation Data progressing with massive data centre project Latest M&A Activity Date Party Company TV ( m) EV ( m) No recent M&A activity Private Equity Activity Date Party Investor EV ( m) No recent Private Equity activity Revenue Growth % Gross Margin % EBITDA Margin % Cash Flow FY8 FY9 FY1 FY11 Op. Cash Flow Free Cash Flow CAPEX Acquisitions Net Cash Flow Shares Issued Net Cash Nicholas Razey 33.8% Simon Taylor 33.8% Narinder Bhuchar 9.% 46 PUBLICATION DATE: 29/1/13

47 Node4 Limited is a UK-based provider of data centre, hosting and ISP services to businesses and organisations. PEER GROUP: Data Centre & Hosting Services TURNOVER: 11,8,6 OWNERSHIP: Private Company Millennium Way Pride Park, Derby DE24 8HZ Tel: Megabuyte View Node4 is a Midlands-focussed provider of data centre colocation, connectivity, hosted VOIP and higher value managed hosting and Cloud services, operating from five proprietary data centres. The company recently undertook an MBO backed by private equity investor LDC. Chairman: David Goldie Since June 213 CEO: Andrew Gilbert Since January 22 CFO: Stephen McElvaney Since January MAY 213 LDC backs Node4 MBO Profit and Loss FY1 FY11 FY12 Revenue Gross Profit EBITDA Operating Profit Profit before tax Net income JAN 213 Node4 continues to shoot the lights out 6 JUN 212 Node4 outgrows title with pending 5th data centre; revenues now into double figures Latest M&A Activity Date Party Company TV ( m) EV ( m) No recent M&A activity Private Equity Activity Date Party Investor EV ( m) 28/5/13 MBO LDC 5 Revenue Growth % Gross Margin % EBITDA Margin % Cash Flow FY1 FY11 FY12 Op. Cash Flow Free Cash Flow CAPEX Acquisitions..1. Net Cash Flow Shares Issued... Net Cash Andrew Gilbert Lloyds Development Capital 25% 2% 15% 1% 5% % EBITDA margin Revenues, rhs EBITDA, rhs m PUBLICATION DATE: 29/1/13 47

48 Onyx Group is a nationwide provider of data centre, hosting, networking and disaster recovery services to SME and corporate customers. PEER GROUP: Data Centre & Hosting Services TURNOVER: 19,46, OWNERSHIP: Private Company Onyx House (Stockton) 9 Cheltenham Road Portrack Interchange Business Park, Stockton on Tees TS18 2AD Tel: Megabuyte View Onyx Group offers data centre, hosting and business continuity services from 1 sites across England and Scotland, meeting the needs of local SMEs. The company attracted the backing of ISIS Equity Partners in a 27m MBO in October 211, including 15m in growth funding, though M&A has yet to follow. Chairman: David Rasche Since January 213 CEO: Neil Stephenson Since January 26 Executive Director: Alastair Waite Since January APR 211 Onyx accounts confirm strong FY1 Profit and Loss FY9 FY1 FY11 FY12 Revenue Gross Profit EBITDA Operating Profit Profit before tax Net income MAY 213 Onyx returns to teens growth after MBO year lull 19 OCT 211> Onyx the latest to fall for the allure of private equity cash Latest M&A Activity Date Party Company TV ( m) EV ( m) No recent M&A activity Private Equity Activity Date Party Investor EV ( m) 1/1/12 GC ISIS Equity Partners 15 18/1/11 SBO ISIS Equity Partners 27 Revenue Growth % Gross Margin % EBITDA Margin % Cash Flow FY9 FY1 FY11 FY12 Op. Cash Flow Free Cash Flow CAPEX Acquisitions Net Cash Flow Shares Issued Net Cash ISIS Equity Partners 2% 15% 1% 5% EBITDA margin Revenues, rhs EBITDA, rhs m % PUBLICATION DATE: 29/1/13

49 Share Price ( ) PUBLISHED: 29 OCTOBER 213 Outsourcery is a supplier of Cloud-based unified communications and other business applications to UK small and medium size businesses. PEER GROUP: Data Centre & Hosting Services TURNOVER: 4,38, OWNERSHIP: Public Company LISTED IN: LSE AIM MKT CAP: 37m Waterfold Park, Rochdale Road,Bury, Lancashire BL9 7BJ Tel: Megabuyte View Outsourcery started life as a predominantly B2B mobile service provider, but has focussed on Cloud-based unified comms services since selling the mobile business to Daisy in 211. It had an AIM IPO in May 213, raising 13m at a 12x revenue multiple, based on relatively bullish growth forecasts. Chairman: Ken Olisa Since May 213 CEO: Piers Linney Since - CEO: Simon Newton Since March 27 3 SEP 213 Outsourcery exits legacy mobile once and for all 25 JUL 213 Do you know the way to San Jose? 13 JUN 213 Outsourcery finally conjures up 211 accounts Profit and Loss FY9 FY1 FY11 FY12 Revenue Gross Profit EBITDA Operating Profit Profit before tax Net income Revenue Growth % Gross Margin % EBITDA Margin % JUN 213 SIPCOM: Unifying communications Latest M&A Activity Date Party Company TV ( m) EV ( m) 3/9/13 Seller Certain Assets 4/1/12 Seller O2 Mobile Services Division 3/3/11 Seller Vodafone mobile services division Latest Fundraising Activity Date Type Amount Raised m 22/5/13 IPO 13 5/2/13 GC Cash Flow FY9 FY1 FY11 FY12 Op. Cash Flow Free Cash Flow CAPEX Acquisitions Net Cash Flow Shares Issued Net Cash Revenue 5.1 EV/Revenue 6.5 EBITDA -6.2 EV/EBITDA - PBT -7.6 P/E Ratio - EPS Div Yield % - DPS May-13 Jun-13 Jul-13 Sep-13 Oct-13 Simon Newton Piers Linney Etive Capital Limited BlackRock SFM UK Management 15.9% stake 15.9% stake 11.9% stake 9.1% stake 8.3% stake PUBLICATION DATE: 29/1/13 49

50 Pulsant is a UK mid market focussed colocation, managed network and hosting service provider, formed from the combination of Lumison, Blue Squared Data and DediPower. PEER GROUP: Data Centre & Hosting Services TURNOVER: 3,433, OWNERSHIP: Private Company Cadogan House, Rose Kiln Lane, Reading, RG2 HP Tel: Megabuyte View Pulsant is a leading provider of data centre and managed hosting services to the UK mid-market, through a Bridgepointbacked buy and build of four companies. 213 revenues and EBITDA are on track for c 44m and 15m respectively. Chairman: Pieter Knook Since November 211 CEO: Mark Howling Since October 21 CFO: Graeme MacKenzie Since October JUN 213 Pulsant on a roll with 18% organic revenue CAGR 29 MAR 211 Lumison FY1 accounts illuminate excellent profitability 19 DEC 212 Pulsant returns to Scottish roots with ScoLocate deal 6 AUG 212 Pulsant accounts shed light on buy and build numbers and potential valuation upside Latest M&A Activity Date Party Company TV ( m) EV ( m) 19/12/12 Buyer ScoLocate /1/11 Buyer Network Technologies /9/11 Buyer DediPower Managed Hosting Private Equity Activity 2 2 Date Party Investor EV ( m) 11/3/12 GC Bridgepoint 24 1/11/1 MBO Bridgepoint Profit and Loss FY11 FY12 Revenue Gross Profit EBITDA Operating Profit Profit before tax Net income Revenue Growth % Gross Margin % EBITDA Margin % Cash Flow FY11 FY12 Op. Cash Flow Free Cash Flow CAPEX Acquisitions Net Cash Flow Shares Issued Net Cash Bridgepoint Development Capital 4% 38% 36% 34% 32% 3% EBITDA margin Revenues, rhs EBITDA, rhs m 5 PUBLICATION DATE: 29/1/13

51 Rackspace Ltd is the UK operating company of Rackspace Inc, the NASDAQ quoted and US-headquartered provider of managed data centre services. The UK accounts for about a quarter of Group revenues. PEER GROUP: Data Centre & Hosting Services TURNOVER: 195,466,864 OWNERSHIP: Private Company 5 Millington Road, Hyde Park Hayes Middlesex Tel: Megabuyte View Rackspace Limited is the UK subsidiary of Rackspace Inc, accounting for approximately 25% of revenues. Rackspace Inc is the largest publicly quoted managed hosting provider globally, and sets the pace in terms of growth, margins and cash flow. Chairman: Graham Weston Since January 26 CEO: Lanham Napier Since April 2 CFO: Karl Pilcher Since January 25 9 AUG 213 Rackspace getting back to form 9 MAY 213 Rackspace lacks pace in first quarter 13 FEB 213 Rackspace Q4 knocks shares back 1% Profit and Loss FY9 FY1 FY11 FY12 Revenue Gross Profit EBITDA Operating Profit Profit before tax Net income Revenue Growth % Gross Margin % EBITDA Margin % DEC 21 Rackspace manages strong hosting and cloud growth Latest M&A Activity Date Party Company TV ( m) EV ( m) No recent M&A activity Cash Flow FY9 FY1 FY11 FY12 Op. Cash Flow Free Cash Flow CAPEX Acquisitions.... Net Cash Flow Shares Issued.... Net Cash Private Equity Activity Date Party Investor EV ( m) No recent Private Equity activity Subsidiary of Rackspace Inc 5% 4% 3% 2% 1% % EBITDA margin Revenues, rhs EBITDA, rhs m PUBLICATION DATE: 29/1/13 51

52 Six Degrees Group is a relatively new buy and build in managed data and voice services PEER GROUP: Data Centre & Hosting Services TURNOVER: 2,181, OWNERSHIP: Private Company 18 King William Street London, EC4N 7BP Tel: Megabuyte View Six Degrees Group is a Penta private equity backed buy and build in managed data servives, with a broad range of activities encompassing data centres and hosting, network connectivity and unified communications. Current run rate revenues and EBITDA are approximately 7m and 14m, after 13 acquisitions. Chairman: Peter Bamford Since November 211 CEO: Alistair Mills Since October 211 CFO: Ronnie Smith Since October OCT 213 Six Degrees Group s focus on the build 2 APR 213 Six Degrees does the biz with BIS acquisition 21 NOV 212 Maiden Six Degrees accounts shed light on buy cost Profit and Loss FY12 FY13 Revenue Gross Profit EBITDA Operating Profit Profit before tax Net income Revenue Growth % 155 Gross Margin % EBITDA Margin % MAY 212 Six Degrees adds 8th and 9th deals; buy and build nearly complete Latest M&A Activity Date Party Company TV ( m) 2/4/13 Buyer BIS EV ( m) 3/9/12 Buyer Aurora Networks /7/12 Buyer Cloud Computing Centre Private Equity Activity Date Party Investor EV ( m) 26/7/12 GC Penta Capital 8. 5/7/11 GC Penta Capital 6 Cash Flow FY12 FY13 Op. Cash Flow Free Cash Flow CAPEX Acquisitions Net Cash Flow Shares Issued 3.3. Net Cash Penta Capital 3% EBITDA margin Revenues, rhs EBITDA, rhs 6 2% 1% 4 2 m % PUBLICATION DATE: 29/1/13

53 Share Price ( ) PUBLISHED: 29 OCTOBER 213 Telecity Group is the leading premium provider of highly connected data centres in Europe, offering a range of flexible, scalable data centre and managed services. PEER GROUP: Data Centre & Hosting Services TURNOVER: 282,95, OWNERSHIP: Public Company LISTED IN: LSE MKT CAP: 1,721m Suite Harbour Exchange Square London E14 9GE Tel: Megabuyte View Telecity has established itself as one of the leading European carrier rich data centre service providers, with a particularly strong position in London, Europe s leading data centre market. The company has used both organic investments in capacity and considerable M&A to expand its capacity and geographic footprint. Chairman: John Hughes Since July 21 CEO: Michael Tobin Since July 27 CFO: Brian McArthur-Muscroft Since June 27 3 JUL 213 A solid first half from Telecity fails to please investors 7 MAY 213 Telecity goes hot Turkey with Sadece buy 6 MAR 213 Telecity rotates independent non-execs Profit and Loss FY9 FY1 FY11 FY12 Revenue Gross Profit EBITDA Operating Profit Profit before tax Net income Revenue Growth % Gross Margin % EBITDA Margin % FEB 29 Telecity Group - Results Focus Latest M&A Activity Date Party Company TV ( m) EV ( m) 7/5/13 Buyer Sadece /11/12 Buyer Academica /8/12 Buyer Tenue Latest Fundraising Activity Date Type Amount Raised m 11/2/1 M&A (3i divestment) Oct-12 Feb-13 Jun-13 Oct-13 Cash Flow FY9 FY1 FY11 FY12 Op. Cash Flow Free Cash Flow CAPEX Acquisitions Net Cash Flow Shares Issued Net Cash Revenue 33.1 EV/Revenue 5.9 EBITDA EV/EBITDA 12.5 PBT 97.8 P/E Ratio 22.2 EPS 36.8 Div Yield % 1.2 DPS 9.68 Norges Bank 8.4% stake Standard Life Investments 5.% stake OppenheimerFunds 4.5% stake Butterfield Asset Management 4.3% stake Legal & General 3.2% stake PUBLICATION DATE: 29/1/13 53

54 Telehouse Europe provides data centre services in London and Paris, and is part of the global Telehouse group owned by KDDI, the Japanese telecom operator. PEER GROUP: Data Centre & Hosting Services TURNOVER: 122,464, OWNERSHIP: Private Company Coriander Avenue London E14 2AA Tel: Megabuyte View Telehouse Europe is one of the pioneers in carrier rich city centre data centres and carrier hotels but unlike its peers (Telecity, Interxion and Equinix) has remained a private company, as a subsidiary of Japanese telco KDDI. It expanded from its London and Paris base to Frankfurt through an acquisition in early 212. CFO: Adrian Bannington Since April 29 Executive Director: Yasushi Kubota Since April 25 Executive Director: Yosuke Fukuma Since October 27 8 AUG 212 Telehouse Europe beats internal expectations in 211 but lags Telecity over five years 11 APR 211 Telehouse Europe reports strong 21 growth but undershoots revenue targets Profit and Loss FY9 FY1 FY11 FY12 Revenue Gross Profit EBITDA Operating Profit Profit before tax Net income Revenue Growth % Gross Margin % EBITDA Margin % MAY 21 Telehouse Europe - A Tale of Two Cities Latest M&A Activity Date Party Company TV ( m) EV ( m) Buyer Databurg GmbH, KRE GmbH 5 5 Cash Flow FY9 FY1 FY11 FY12 Op. Cash Flow Free Cash Flow CAPEX Acquisitions Net Cash Flow Shares Issued Net Cash Private Equity Activity Date Party Investor EV ( m) No recent Private Equity activity KDDI 5% 48% 46% 44% EBITDA margin Revenues, rhs EBITDA, rhs m 42% PUBLICATION DATE: 29/1/13

55 The Bunker provides highly secure data centre services, based on two exmilitary bunkers in Kent and Berkshire. PEER GROUP: Data Centre & Hosting Services TURNOVER: 8,51,417 OWNERSHIP: Private Company Ash Radar Station Marshborough Road Sandwich, Kent Tel: Megabuyte View The Bunker has turned in a consistently strong financial performance, selling colocation and managed hosting services from its proprietary and very secure data centres in ex military bunkers. This has not come cheap, with capex running substantially ahead of EBITDA in recent years. Chairman: Steven Joseph Since July 1994 CEO: Peregrine Newton Since July 24 CFO: Andy Theodorou Since - 24 SEP 212 The Bunker continues to play above par Profit and Loss FY9 FY1 FY11 FY12 Revenue Gross Profit EBITDA Operating Profit Profit before tax Net income MAY 211 The Bunker secures strong growth and significant funding in 21 1 FEB 211 The Bunker plays the security card Latest M&A Activity Date Party Company TV ( m) EV ( m) No recent M&A activity Private Equity Activity Date Party Investor EV ( m) 29/1/1 GC Foresight 1. 29/2/8 GC Foresight.42 31/3/7 GC Foresight.42 Revenue Growth % Gross Margin % EBITDA Margin % Cash Flow FY9 FY1 FY11 FY12 Op. Cash Flow Free Cash Flow CAPEX Acquisitions.... Net Cash Flow Shares Issued.... Net Cash Foresight 3% 2% 1% % EBITDA margin Revenues, rhs EBITDA, rhs m PUBLICATION DATE: 29/1/13 55

56 UK2 Group is a provider of hosting and domain name services in the UK, Europe and the US. PEER GROUP: Data Centre & Hosting Services TURNOVER: 3,216, OWNERSHIP: Private Company 29th Floor, 1 Canada Square Canary Wharf, London E14 5DY Tel: Megabuyte View UK2 is a predominantly shared hosting provider to consumers and small businesses, backed by LDC. It is relatively unique among the smaller private companies in the data centre and hosting peer group in having a strong presence in both the UK and US, and it is now also actively expanding into other geographic markets. Chairman: Philip Male Since May 211 CMO: Adam Kilgour Since March 212 Executive Director: Andy Manning Since May 26 9 AUG 213 UK2 pauses for breath in JAN 213 UK2's preparations for global expansion 18 OCT 212 UK2 Group looking increasingly UK too as US takes off Profit and Loss FY9 FY1 FY11 FY12 Revenue Gross Profit EBITDA Operating Profit Profit before tax Net income Revenue Growth % Gross Margin % EBITDA Margin % OCT 211 UK2 Group looking increasingly misnamed Latest M&A Activity Date Party Company TV ( m) EV ( m) No recent M&A activity Private Equity Activity Date Party Investor EV ( m) 19/4/11 MBO LDC 47 Cash Flow FY9 FY1 FY11 FY12 Op. Cash Flow Free Cash Flow CAPEX Acquisitions Net Cash Flow Shares Issued.... Net Cash Lloyds Development Capital 2% 15% 1% 5% EBITDA margin Revenues, rhs EBITDA, rhs m % PUBLICATION DATE: 29/1/13

57 UKFast.net is a Manchester-based provider of hosting and data centre services. PEER GROUP: Data Centre & Hosting Services TURNOVER: 19,87, OWNERSHIP: Private Company City Tower, Piccadilly Plaza Manchester, M1 4BT Tel: Megabuyte View UKFast.Net is fast by name and by growth, leveraging its proprietary Manchester data centres and managed hosting skills for strong revenue and profits growth. Its revenue, EBITDA and cash flow progression in the last two years is among the best of the DCH peer group. CEO: Lawrence Jones Since October 1999 Executive Director: Neil Lathwood Since July 27 Executive Director: Jonathan Bowers Since July 27 5 JUL 13 UKFast embarks on the acquisition trail with BurstNET deal 22 OCT 12 UKFast.Net reports fast growth and big bounce in margins for SEP 11 UKFast.net; fast by name, fast by nature Latest M&A Activity Date Party Company TV ( m) EV ( m) 5/7/13 Buyer BurstNET UK division - - Private Equity Activity Date Party Investor EV ( m) No recent Private Equity activity - Profit and Loss FY9 FY1 FY11 FY12 Revenue Gross Profit EBITDA Operating Profit Profit before tax Net income Revenue Growth % Gross Margin % EBITDA Margin % Cash Flow FY9 FY1 FY11 FY12 Op. Cash Flow Free Cash Flow CAPEX Acquisitions.... Net Cash Flow Shares Issued.... Net Cash Gail Jones 5.% Lawrence Jones 5.% 5% 4% 3% 2% 1% % EBITDA margin Revenues, rhs EBITDA, rhs m PUBLICATION DATE: 29/1/13 57

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