ControlCircle: Invest to grow

We’ve just met up with ControlCircle CEO, Carmen Carey. The name might ring a bell as Carey was COO of MessageLabs several years back. ControlCircle is based in Canary Wharf and provides a range of data centre services including managed hosting and co-location, disaster recovery and network services (via its MPLS network). New to the stable is its public cloud offering – launched last year. The company is privately held with backing from Scottish Equity Partners, which invested back in 2010 with the two co-founders (President, Damian Milkins and CFO, Simon Hancock) as the other major shareholders.

In fiscal 2012, ControlCircle had revenues of c£21m, which makes it smaller than some comparable players such as Adapt (c£45m), Pulsant (£30m) and iomart (£43m). However, its revenue growth at c20% is pretty typical for this type of firm – see iomart closes strong FY13) and (Pulsant completes strong FY12.

Mid-market organisations and departments of larger enterprises (with autonomy over IT decision making) are ControlCircle’s key targets. For example, Saga, rightmove, LUUP, KPMG and Robert Walters. Its sweetspot is contracts covering the management of complex infrastructure that is critical to the customer’s business. For example, Saga’s website where services such as insurance and holiday packages are old to the over 50 age group. 

With EBITDA of c£1m, ControlCircle’s profitability is below some of its immediate competitors. Carey promises a “transition in EBITDA within two years” once the firm has completed its current investment phase. Recent investments include its new public cloud offering, a new customer portal, and monitoring and management platforms. There is also on-going investment in additional service offerings, such as enhanced tiered storage.

The reason for all this investment is to line the business up for future growth. At the moment, Carey and team are prioritising growth over profits and aiming for a business that will turn-over between £30m and £35m in the next few years. All of that is likely to be organic growth as Carey is ruling out acquisitions in the short term.

Against the backdrop of the overall infrastructure services market – which is large (£13.8bn in 2013) but shrinking – the market in which ControlCircle, Pulsant, Adapt, iomart and others operate is growing strongly. The opportunities are plentiful and the market fragmented, with room for all of these players. Indeed, the biggest competitor for these suppliers is typically the internal IT department.

What makes the mid-market so attractive to providers is that cost reduction is not always the main reason CIOs turn to an external supplier. In many cases these organisations have outgrown their existing infrastructure set-up and the CIO is under pressure to upgrade the performance. In this situation, it is possible that the CIO will in fact increase IT spend. What the buyer is looking for is an improved and more reliable and responsive service. This requirement can in turn provide opportunities for cross-selling services.

Within this market context, and with the improvements to its portfolio, ControlCircle has a very good chance of hitting its growth targets. To my mind, the real challenge is going to be bringing profit levels into line with its peers. But if Carey can make that happen, Scottish Equity Partners are likely to be very satisfied with their investment.

Posted by Kate Hanaghan at '07:45' - Tagged: datacentres   infrastructure