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By | Paul Kunert 27th January 2014 13:59

Mega UK reseller Kelway bags investment banker for matchmaking service

London-based reseller, one owner only, seeks new PE backer

Kelway has appointed global investment banker William Blair to seek a way forward for the business, which in all likelihood appears to involve hauling in a new private equity backer.

As The Channel previously noted, Kelway has swelled to a £500m sales biz, which appears to restrict potential trade buyers in UK reseller land to all but the biggest.

Our sources say a trade sale is one avenue Blair will still explore but the more probable move will see the corporate banker try to lure in fresh VC cash to buy out Core Capital's long held stake in the business.

"I think we can expect to see a new private equity partner invest over the next 12 months," said a source familiar with the matter.

A growth plan is being re-drafted by Kelway bosses that will likely involve trying to hit the £1bn sales barrier with further acquisitions an inevitable cornerstone of that strategy.

From then, an IPO is something being mooted, say our sources, at least that is part of the current thinking, if all goes according to plan.

A source told us that Kelway needs a larger PE backer to close the larger deals required to expand more aggressively, and that Core wants to return cash to its shareholders.

Core took a 25 per cent stake in Kelway in 2006 for £5.2m when the reseller's revenues stood at £45m, but upped this to 29 per cent in 2011 when the stake was transferred to a new limited partnership fund.

Since 2006 London-based Kelway bought Elcom out of administration, and devoured Panacea Services, Repton, BSS, SAM Practice, ISC Networks and Equanet.

With insolvencies steadying, the improving UK economy translating into brisker trading conditions, as recently reported by Computacenter and analyst Context, VCs may view the tech sector as an even less risky bet.

Recent figures from Regent Partners (PDF) indicate that the UK accounted for 26 per cent of M&A activity across Europe in 2013, with privately owned organisations across the region doing most of the selling.

The internet services sector, primarily e-tailing, saw a 23 per cent spike in deals, the largest in the UK, but sales of hardware businesses were down seven per cent.

That said, Kelway – like many of its counterparts – is bidding to reduce reliance on product transactions by building a larger services practice, which as of March last year stood at a £56.2m operation.

Kelway, William Blair and Core Capital refused to comment. ®

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