Glasgow-based secure cloud services firm Iomart Group plc announced the acquisition of Kookaburra Topco Limited, the holding company of Atech Support Limited, for a total of £57 million, funded through the company’s existing cash and banking facilities.
Iomart also published a trading update for the six months ended September 30, 2024, reporting flat revenue at £62 million with adjusted EBITDA and adjusted profit before tax decreasing to £17m (H1 FY24: £18.6m) and £4.5m (H1 FY24: £7.6m), respectively.
The firm said overall results for the year to March 31, 2025, are expected to be below market expectations.
Iomart shares fell as much as 8%.
“Atech is one the UK’s most highly accredited Microsoft Solutions Partners and the combination of the two businesses creates a powerful extended set of offerings for mid-market customers, cementing the group’s position as a leading ‘Microsoft First’ solutions provider in the UK,” said Iomart.
Based in Marlow and with offshore operations established in India and Poland, Atech employs 150 people. For the 12 months to June 30,2024, Atech generated revenues of £32.2 million and adjusted EBITDA of £3.3 million.
Ryan Langley, Atech CEO since 2021, will continue to oversee the business supported by his experienced team. To support the combination of the two businesses, Langley will take up the post of Group CTO “to ensure the group’s technology roadmap is well placed to address customers’ digital needs now and into the future.”
Iomart said the deal positions the group in the highest growth areas of the cloud computing market: modern workplace, public cloud Azure infrastructure and security managed services, in line with its stated acquisitive growth strategy.
It said the acquisition provides considerable cross sale opportunity into Iomart’s existing extensive customer base, providing a clear path to accelerated growth for both businesses and reduced churn, and brings an offshore support capability into the group, providing operating margin enhancement opportunities.
On trading, Iomart said: “Whilst weaker H1 results were expected, due to the higher costs of Broadcom’s VMware licencing pricing (£1.3m annual cost), combined with the reduced recurring revenue as the group started the year due to customer churn, trading results were further impacted by some specific timing of order billings and the continuation of higher churn which has negated the positive contribution from recent acquisitions.
“Given Iomart’s relatively fixed cost base in some areas, including depreciation, amortisation, and interest expenses, this has had a notable impact on H1 profitability.
“Action has been taken to address some of the profitability trends experienced, including cost efficiency and integration programmes which will benefit H2 and onwards. These programmes will now be assessed within the context of the enlarged group following the Atech acquisition, including the opportunity that a captive offshore operation in India provides.
“The positive momentum in order bookings achieved in recent periods has continued, with order booking levels at record levels, demonstrating the ongoing demand for the group’s products and services.
“However, these take time to flow through into revenue whilst lower renewal levels plus continued revenue churn from the long tail of the self-management infrastructure customer base, which has been higher than expected in the last 6 months, has a more immediate impact. As a result, iomart has entered H2 with a lower run rate of revenue than previously anticipated, which will have an impact on full year FY25 results for the existing iomart business.”
In its outlook, Iomart said: “Looking at the existing Iomart business, the board anticipates a flat year on year revenue profile for the full year FY25, and whilst profit margins are expected to partially recover in H2 from the positive actions taken on cost efficiency and the gross margin contribution from the expected higher H2 revenue following the order bookings growth, overall results for the year to 31 March 2025 are expected to be below market expectations.”
Iomart CEO Lucy Dimes said: “We have made good progress on integrating our business, growing order bookings and building better internal capabilities such as product and partner management, to ensure stronger foundations as we move forward with our strategy, during a challenging period of lower customer renewal rates.
“Our acquisition of Atech marks a significant milestone for iomart in our ‘Bigger, Better, Bolder’ strategy. Atech was a strategic target for us, and creates a powerful combination of Microsoft credentials, managed security services, high quality referenceable customer deployments, leading-edge technology and global delivery capability.
“This accelerates and plays directly into our vision to be the UK’s leading secure public, private and hybrid cloud services provider, marking the start of the next phase in the evolution of iomart. The combined group will be well positioned to retain and grow revenues with our existing customer base as well as present a market leading capability to attract new customers.”
Atech CEO Ryan Langley said: “We are delighted to be joining Lucy and the wider Iomart team. The businesses share the same ambition, to be at the forefront of bringing the most in demand secure cloud offerings to our customers, enabling them to modernise their systems, harness the power of Microsoft AI capabilities, drive operational and process efficiencies, all with a secure by design approach.
“With the increased operational strength of Iomart supporting us, and continued strengthening of our Microsoft relationship, we are excited about what lies ahead.”