Knight was set up by Paul Billingham and Adam Zoldan who saw a gap in the market for a corporate finance business to serve ICT resellers with an unrivalled service and hands on industry experience. Knight sits neatly between the rather expensive generalist services offered by Big 4 accountancy practices and traditional brokers who do not add value over the course of a transaction.

In its first year, Knight completed 10 transactions, varying in size from around £1m to Daisy's £17m acquisition of Redstone's telecom assets, and with 3 completions in 2010 already the trend does not appear to be slowing down.

Adam Zoldan comments "2009 was a year when valuations defied the recession and this trend is continuing into 2010. Organic growth is now more difficult and more expensive to achieve, and in turn this is the driving force behind many acquisitions.

"Those looking to continue with basic services rather than adopt and expand their portfolio, should consider an exit now as the market is no longer growing. The timing for a sale is good, valuations are strong and there is plenty of appetite from buyers.

"However there is a proliferation of opportunities to increase value. The irresistible move to IP telephony will help drive organic growth opportunities. Mobile operators are finally embracing the channel, and hosted IT and software services will become more prevalent and offer a whole host of new recurring revenue services. All of which plays directly to the strengths of the channel."

Knight believe the key trends in telecoms M&A in 2010 to include:

• Continued healthy balance between buyers and sellers, ensuring values remain buoyant
• Increased awareness that the value is in the customer relationship, not just the product
• Mobile operators and private equity to enter the market for fixed line acquisitions
• Continued consolidation at all levels

Commenting on the deal, Paul Richards, Director at IP Solutions said: "We have seen the potential for growth from hosted solutions accelerate over the last three years and wanted to invest in our technical expertise. This deal brings us a substantial base of customers but more importantly the expertise we require to become the largest reseller of hosted voice in the UK."

Guy Miller, Head of Services at Liquid, who is staying on with the enlarged business added: "We have worked with IP Solutions for a long time and I am truly excited about combining their sales organisation with our back office and support team. The market opportunity is huge and the combined company now has the resources it requires to deliver on this massive potential."

Keith Purves, Director at IP Solutions said: "This acquisition has accelerated our business strategy and our future goal is clear: to become the largest reseller of hosted voice solutions in the UK. We aim to achieve 10,000 seats by the end of 2010 and double that next year."

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Currently, entrepreneurs who sell their businesses are subject to capital gains tax, which for the first £2m of capital gain is taxed as low as 10%, with the rest at 18%. This provides a significant tax advantage to entrepreneurs over the taking cash out of their businesses through salary and dividends which can exceed an effective tax rate of 50%, as income tax on earnings over £150,000 per annum hits 50% with a rate of 42.5% on dividends before tax credits.

We are all aware of the reasons why the Government is seeking to raise taxes. As Capital Gains Tax is not seen as a vote winner or loser, it was always going to be high on the list. All the main parties seem to be indicating that the rate will rise, with Vince Cable of the Liberal Democrats commenting that his party would raise CGT in line with income tax – up to 50%.

Paul Billingham of Knight says "We fully expect CGT to rise, but we are anticipating a window of opportunity post election to take advantage of the current regime. Entrepreneurs need to consider the current tax system and the opportunity it presents when deciding how to plan for an eventual exit. If an exit is planned a in the next 2 years, entrepreneurs may find that sooner rather than later may be the key to maximising value. If business owners intend building their businesses for the longer term, then the risk is less of an issue.

“It was a year when many observers expected a rash of distressed sales, but in reality the reseller sector held up extremely well and valuations remain strong.

“This trend is set to continue into 2010. The traditional telecoms sector is not growing; the once significant pricing gap between legacy operators and the dynamic reseller sector has narrowed, contract terms are more stringent, and high levels of customer service offered by the reseller community has dramatically reduced churn. The result is that organic growth is now more difficult and more expensive, and in turn this is the driving force behind many acquisitions.

“So what is the future for resellers? Those looking to continue with basic calls and lines, should consider an exit now as the market will decline and competition will only get stronger. The timing for a sale is good, valuations are strong and there is plenty of appetite from buyers.

“However there is a proliferation of opportunities to increase value. The irresistible move to IP telephony will afford organic growth opportunities to upgrade customer lines. Mobile operators are finally embracing the channel, and hosted IT and software services will become more prevalent and offer a whole host of new recurring revenue services. All of which plays directly to the strengths of the reseller.

“The telecom reseller community delivers cost-effective customer solutions and their greatest attributes are arguably profitability and sales ability. For those resellers that harness these attributes and embrace new services the opportunities are as good as ever. Matt Riley at Daisy has proven what a reseller can achieve, and at Knight we know that the next Daisy is already out there.”

A keynote speech from Alastair Mills of Spiritel plc, provided the platform for a lively debate with views from fixed line, mobile and IT businesses illustrated some stark differences in opinion together with some interesting views that all parties shared.

Paul Billingham, Director at Knight CF commented “It was eye-opening to see the different perspectives of the industry around the table. Everyone agrees that converged or unified communications is happening today, but the end result is open to massive differences in interpretation.”

The mobile operators caused some interesting debate with a good degree of anticipation regarding when, rather than if, they would enter the fixed line market. Discussions centred around accusations of high pressure tactics in the mobile industry being used to coerce partners into selling specific products. There was general agreement that they would attempt to influence partners into selling their own fixed line products, but because of stronger competition amongst suppliers they would not be successful in manipulating the fixed line sector in this way unless they could add true value to the service.

Another interesting view was Hosted IP services. Almost all the attendees had experience of selling the products and there was universal agreement that hosted services would become increasingly widespread, but equally every attendee had experienced major issues with installations. In every example it was the failure of broadband rather than the hosted pbx that appeared responsible for the issue and agreement that the fear factor in selling hosted was around the quality of the connectivity. ISP’s were accused of overloading their networks to save cost and many participants said that they will refuse to sell these services until the broadband quality, pricing and SLA matched that available on ISDN services.

With regard to the future of resellers, the table concluded that for those looking for an exit valuations are currently buoyant and an increasing number of owners were looking to exit before an anticipated change in the capital gains tax rate. Equally for those looking to build their businesses, the value remains linked to customer ownership; calls and lines will gradually transition into hosted and IP services, and selling managed IT and software services would become more prevalent. The end result is the same; recurring revenues and customer lock-in equals value.

Billingham concluded “By having a widespread range of businesses present we learnt a great deal about how the sector could shape up as the industry converges. Knight CF was founded on our industry experience and our aim for these luncheons was to share our experience and learn from others and we hope that everyone there benefitted equally in this way.”

Further Roundtable Luncheons will take place in April and June in Manchester and Birmingham. You can register your interest by clicking here.

The deal has the potential to deliver £8.5m in additional revenues over the next five years for Elite Telecom, which provides business telecoms services to a range of clients including Air France/KLM, Intercontinental Hotels Group and a number of Premier League football clubs.

CAN Networks, based in Dorset, supplies voice and data network services to an extensive client base including councils, schools and police forces.

This latest acquisition reaffirms Elite Telecom’s position as one of the UK’s most rapidly expanding companies and follows its 5th place ranking in 2009’s Lloyds Development Capital Hot 100 fastest growing firms list.

CAN Networks’ founders and senior management team will be joined by Elite’s Matt Newing, Nick Mannion and Adam Turton, who bring a wealth of knowledge and experience of both the telecoms industry and delivering successful business growth.

Matt Newing, chief executive of Elite Telecom, said: "We have big aspirations for where we want to see Elite both in the short and medium term and this purchase will help us to realise that growth.

"The telecoms market has seen extensive consolidation and we have successfully developed the business to a position where we are now the buyers in the market.

"CAN Networks has built up a successful customer base over the last 12 years on the back of an excellent offering and high class customer service and this fits well with our philosophy.

"This deal will give us a foothold in the public sector, a relatively untapped market for Elite Telecom.”

Paul Langford, managing director of CAN Networks, said: "Elite will give us the resources and expertise to grow in the future and be able to offer our customers an even wider range of telecoms and data services.”

Gareth McIntegart of lawyers DWF and Paul Billingham of Knight CF advised on the deal.

Edge Solutions was sold to Spiritel plc which formally completed 20 minutes before the sale of UK Telco to Opal. Later in the week ADK communications was sold to Spiritel. Knight CF advised the shareholders of Edge, UK Telco and ADK over the course of the disposal processes.

Commenting on the deals, Adam Zoldan, Director of Knight CF "These deals continue to demonstrate the buoyancy of the sector and are testament to the success of the channel in building high value businesses."

Steve Burges, shareholder of Edge who becomes Managing Director of Spiritel Network Services said "Knight ensured I could focus on running my business. They found the best buyer for our company and negotiated a deal that fulfilled our aspirations."

Alastair Mills, CEO of Spiritel added "Knight’s combination of deal experience and industry knowledge means they can help sellers separate the key issues from the ‘red herrings’ and focus on getting the deal done. As a buyer we know we’re dealing with professional advisors and the sellers benefit from a trusted partner through what can otherwise be a painful process."

Less than half an hour later Opal acquired UK Telco. Rob Boylett said "From day one, Knight analysed our business and identified areas of where we could quickly increase margin. This alone more than justified their fee, but the level of support we received over the course of the deal and their determination to ensure it was completed on our terms was outstanding" Peter Arundale was equally delighted with the outcome adding "We probably didn’t appreciate how challenging a disposal process could be, but Knight worked hard to get the right deal done. If you are looking to sell your business, you should call Knight Corporate Finance"

Paul Billingham, Director of Knight CF commented "It’s enormously satisfying to be able to assist entrepreneurs realise value for the hard work invested in their business. We have also been investing in people to ensure we had the resource at hand to meet our client’s timescales and expect to announce further deals this year."

According to Adam Zoldan, director at channel mergers and acquisition specialist Knight CF, this and future Governments are under pressure to change the tax entrepreneurs pay when they sell their businesses, currently between 10% and 18%.

"This provides a significant tax advantage to entrepreneurs over taking cash out of their businesses through salary and dividends which can approach an effective tax rate of 50%, particularly when income tax on earnings over £150,000 per annum rises next year to 50%.

"The government will be keen to end this differential in the near term, as it offers a straightforward way of helping reduce the ever growing public debt. This is a cross party view. Vince Cable of the Lib Dems has also highlighted the need to reduce the gap between capital gains tax rates and income tax rates. At the Lib Dem conference he spoke of "closing tax loopholes and privileges enjoyed by the relatively wealthy, namely the big differential between top rate income and capital gains tax".

Labour introduced the current rates of capital gains tax to curtail the prior tax rate of 10% tax rate (taper relief) which they felt was being abused by the UK's venture capital community when they sold companies.

"This gave entrepreneurs relief as a compromise to the individual but they are now deeply aware of the lost tax opportunity this presents." said Zoldan.

"The Conservatives have long been seen as the party to support business and entrepreneurs, and so raising the issue now would be political suicide but at the Tory Party conference in Manchester policy advisors were said to agree there was a clear case for increasing capital gains tax in the near term, and whilst this may upset core party support, it will not be seen as an issue for the majority of voters."

Paul Billingham of Knight added: "Entrepreneurs need to consider the current tax system and the opportunity it presents when deciding how to plan for an eventual exit. If an exit is planned in the next two years, entrepreneurs may find that a delay beyond March 2010 impacts on the net receipts from a sale. Whilst vendors are aware of the benefits of the current capital gains tax rates, very few seem to consider it as part of their planning".

Currently, entrepreneurs who sell their businesses are subject to capital gains tax, which for the first £1m of capital gain is taxed as low as 10%, with the rest at 18%. This provides a significant tax advantage to entrepreneurs over the taking cash out of their businesses through salary and dividends which can approach an effective tax rate of 50%, particularly when income tax on earnings over £150,000 per annum rises next year to 50%.

Knight believe that both the current and any future Government is under pressure to reduce this differential in the near term, as it offers a straightforward way of helping reduce the ever growing public debt. At the recent conference season for the main political parties, Vince Cable, seen by many as the most competent politician in terms of understanding the economy, highlighted the need to reduce the gap between capital gains tax rates and income tax rates. He spoke of “closing tax loopholes and privileges enjoyed by the relatively wealthy; the big differential between top rate income and capital gains tax”.

Labour introduced the current rates of capital gains tax to curtail the prior tax rate of 10% tax rate (taper relief) which they felt was being abused by the UK’s venture capital community when they sold companies. It introduced entrepreneurs relief as a compromise to the individual and are deeply aware of the lost tax “opportunity” this presents. The Conservatives have long been seen as the party to support business and entrepreneurs, and so raising the issue now would be political suicide. Business North West’s Insider Magazine spent time at the Conservative’s Manchester conference taking soundings from policy advisors. He reported that whilst no one wanted to admit it, there is a clear case for increasing capital gains tax in the near term, and whilst this may upset core party support, it will not be seen as an issue for the majority of voters.

Paul Billingham of Knight says “entrepreneurs need to consider the current tax system and the opportunity it presents when deciding how to plan for an eventual exit. If an exit is planned in the next 2 years, entrepreneurs may find that a delay beyond March 2010 impacts on the net receipts from a sale. If business owners intend building their businesses for the longer term, then the risk is less of an issue. Some business owners are more aware than others of this impending issue and one business owner approached us recently as he specifically wanted to sell now in the current tax climate. However whilst vendors are aware of the benefits of the current capital gains tax rates, very few seem to consider it as part of their planning”.

Rob Burbidge joins from j4b PLC where he was Finance Director and will be providing consultancy to clients and managing deals. Kelly Edwards comes from V Networks to take on the role of Office Manager.

Knight Corporate Finance was formed at the start of the year by Paul Billingham and Adam Zoldan, and they have already made a significant impression in the market. The latest transaction was advising Daisy on the acquisition of Redstone’s telecoms business for £17m in August. Both new recruits have extensive experience in working in telecoms and M&A, and will work alongside co-founders Adam Zoldan and Paul Billingham.

Billingham said: “Since forming the business we have completed six transactions and gained a number of clients on a retained basis. M&A in the industry is incredibly active and in order to continue to support our current clients and to develop new business opportunities we felt the time was right to invest in the business. Rob and Kelly both bring much needed skills to Knight which will complement myself and Adam”.

Former Commercial Director at Opal, Paul Billingham, and ex-V Networks Managing Director, Adam Zoldan met on opposite sides of the table during the negotiation of the sale of V Networks to Opal. With over 30 years of experience between them, they launched Knight Corporate Finance to help directors refocus on important personal and business objectives. Their vast experience, wide network of contacts and proven success in the ICT channel is used to provide services including: refinancing,business improvement and exit plans through to the sale of the business.

He says events this year have proved that a well run channel player can benefit and make it big in a short space of time. “Daisy is a great example of how a well managed company can benefit from the recession. Adventurous resellers should look to the future with optimism," said Billingham. “The recession did not impact on Daisy’s float on AIM because investors still have an appetite for businesses with strong recurring revenues and low levels of capital expenditure. And the funds raised have been used to acquire three businesses that had lost some confidence from their own banks. Daisy is a great story and reflects well on the whole sector."

There is more consolidation to come, says Billingham, with a range of buyers at different levels. “As well as Daisy, Chess, Spiritel and Opal are all active," he noted. “What has surprised us is the number of so called smaller resellers who also have funding in place and are looking to grow through acquisition. We are still seeing a strong list of potential buyers for all the transactions we are undertaking at the moment. Valuations are holding up very well."

Billingham observed that the Stock Market ‘seems to think we are on the recovery road’, but he is not convinced, saying: “The banks are still not lending. Until that changes there is no room for complacency. This has been evidenced by what has happened recently with Eurotel, AT Comms and Shipton. But there are specific circumstances with each of these and they should not be seen as a sign of what is to come for the rest. The loss of confidence of banks is the main threat to the sector. It impacts in two ways: Firstly, channel businesses will find it harder to seek or retain lending. Secondly, systems businesses are finding that where previously their customers could easily receive credit to fund purchases of new hardware this is no longer the case."

Billingham believes the recession has tightened up company practices in the channel and given many resellers a wake-up call should they be growing their business or preparing it for sale. “When we start working with businesses to gear them up to sell, the business owners often comment that the process helps them learn things about their business that they did not previously know," said Billingham.

Deals often fall down because something will appear during a transaction that the owner was not aware of within the business, which demonstrates that the business was not actually ready to sell without better preparation. The key to any reseller now is to focus on keeping costs under control, prioritise existing customers over potential new ones and be aware of the technological changes in the industry that may impact on the business in the longer term."

He says that the move towards products such as VoIP, SIP, LLU and hosted PBX that replace or complement traditional calls, lines and hardware, will present opportunities for resellers to retain customers for the longterm. But still believes that traditional call minutes has a long way to run yet.

Billingham believes that the independent comms channel has a solid future and with proper planning resellers can ‘do a Daisy’. “The channel is in great shape," he stated. “No one could have predicted the rise of Opal to challenge the incumbent carriers. And nobody would have predicted Daisy having a current market capitalisation of £200 million. There is a reseller operating now that will become the next Opal or Daisy."

The most recent transaction involved the sale of Maxim Solutions to GP Network Services. Peter Smith of Maxim commented: "From a very early stage Knight CF identified the most appropriate buyer for our company, and they were absolutely right." Ash Bodey of Maxim continued: "Knight were always on hand for us and delivered a deal within incredibly tight timescales. They were a pleasure to deal with and delivered on their promises."

Commenting on the partial sale of his customer base to Chess, Alan Snelling, Director of CI Wholesale said: "Knight CF ran a competitive tender for the base and surpassed our expectations in terms of the price that was achieved. They ensured the due diligence process did not deflect from our ability to run the business and worked with us through to a highly satisfactory completion."

Adam Zoldan, Director at Knight CF said: "It's our work with entrepreneurs where we add real tangible value. In an exit process we use our experience and relationships to negotiate the best possible price with the appropriate buyer. We then micro-manage the project through to completion as we recognise that above all our client’s number one priority has to be running their business.

"It’s an incredibly exciting time in the telecoms sector; with mid-sized resellers maintaining growth and continuing to attract high valuations, we fully expect the level of transactions to continue over the next six months as more buyers look to grow by acquisition."

This experience was brought to bear again when Knight CF assisted Daisy plc in its strategic partnership agreement with Telstra International EMEA, that included the transfer of a number of voice contracts for Telstra International EMEA's Small and Medium Businesses (SMBs) in the UK, over to Daisy. Matthew Riley, CEO of Daisy said "Knight's knowledge and experience helped to ensure that the deal completed smoothly and we were ready and prepared to provide a seamless handover to our new partners."

Knight Corporate Finance Director Paul Billingham said "It's been a busy six months for us since we formed, and the interesting aspect has been the range of transactions that we have been involved in. In the current economic climate there are a number of distressed opportunities, but these have been almost exclusively larger businesses that carry a high corporate overhead. We have found that mid-sized resellers are better managed, are maintaining growth and continue to attract high valuations. Market consolidation and strategic transactions continue and we look forward to announcing more deals over the course of the year."

"We are closely monitoring the conditions in real terms. While virtually every other sector has experienced a massive decline in value, the telecoms channel has seen valuations remain firm with a high level of deal activity," said Zoldan.

"When you compare the performance in the media, property, retail sectors the difference is astonishing. When times are hard there is nothing better than reliable, recurring revenue streams that the SME reseller community has built so successfully."

Rather than simply brokering deals, Knight CF works with its clients to maximise the value of their assets in a way that the benefits can be clearly appreciated by a potential acquirer, and according to Billingham this translates to price.

He said: "Every deal has its particular issues but the skill is understanding where the real value lies in a business, and securing that value. Everyone has their own perception on what their business is worth and there is a whole variety of metrics and methodologies used to value companies. But in reality there is only one value of your company, and that is the price that someone will pay for it."

Alastair Mills, CEO of Spiritel, commented: "Despite the unprecedented state of the economy, there are still deals to be made in our sector and for the right assets, acquirers will still pay sensible prices."

Rather than simply brokering deals, Knight CF works with its clients to maximise the value of their assets in a way that the benefits can be clearly appreciated by a potential acquirer, and this translates to price. Paul Billingham said "We specialise in helping companies make the most of their business, both in the short and long term, as we know what buyers are looking for. Even if resellers are not looking to exit yet, steps that they take now will impact on the value they ultimately achieve in years to come."

Paul Billingham said: "Every deal has its particular issues but the skill is understanding where the real value lies in your business, and securing that value. Everyone has their own perception on what their business is worth and there is a whole variety of metrics and methodologies used to value companies. But in reality there is only one value of your company, and that is the price that someone will pay for it."

These financial heavyweights have joined forces to help channel entrepreneurs re-evaluate their businesses and their own personal aspirations. The pair believe many owner entrepreneurs, specifically in the recession, are too busy focused on day-to-day survival to concentrate on long-term business goals.

Billingham, who has completed 15 company acquisitions during his 14 years at channel focused, high growth companies said: "In tough times growth and business development go to the back of people's mind. But there is an abundance of opportunities as fixed line telecoms, mobile, IT and data technologies converge. And for those enterprises less inclined to develop, there are opportunities to exit.

"In either case, it is essential that the right decisions are made. Involving an experienced professional who can offer impartial and objective advice will enhance the decision making process. Making the right strategic decisions now will have a significant bearing on the value of the enterprise."

Zoldan was lead advisor for telecommunication transactions at PricewaterhouseCoopers and sold companies including Via.Networks, PSInet Europe, Tele2 and Cable Telecom before heading up VNetworks and helping to engineer the company's sale to Opal last September.

Zoldan said: "We always seek to understand financial and non-financial aspects of the business, and establish what enterprise owners/managers are looking to achieve at no cost or obligation to the enterprise. Once engaged, as well as experience and knowledge we also have a wide network of industry and corporate contacts on hand to aid both the decision making and delivery process when required."