Case Study: XLN
Dialling up sales for telecoms provider – XLN is a supplier of fixed-line, mobile and broadband services to customers in the SME sector.
Market leader for SMEs – The company was co-founded by Christian Nellemann in 2002 after spotting an opportunity to better serve the SME telecoms market. Deregulation of the retail telecoms market meant XLN could leverage buying power and offer businesses cost savings and better customer service. The team had created one of the UK’s largest independent telecom providers for SMEs and was looking to expand the company further through organic growth and acquisition.
We backed the management buyout of XLN, investing £6.6m for a 57% equity stake. The deal enabled Christian to buy out several minority shareholders. Palatine Partners Gary Tipper and Tony Dickin joined the board as non-executive Directors. Our investment strategy had four key elements: to increase organic growth, deliver operational improvements, develop new products and acquire competitor businesses in a fragmented market to drive synergistic benefits from utilising XLN’s scalable operating platform.
Going for growth with added value – We introduced one of our network contacts to the business who worked with the company to transfer line usage to a lower-cost provider, which enabled the business to achieve annual cost savings of circa £1.6 million.
We worked with Christian and the team to appoint David Mason as Non-executive Chairman. David was highly experienced in the telecoms sector, having founded the successful 3i-backed telecoms and IT consultancy Mason Group.
A year after our investment, we backed XLN’s acquisition of a competitor, OneBill Telecom, with an additional investment of £2m to part-fund the acquisition. The OneBill acquisition increased sales capability and added 24,000 business customers. The acquisition also drove significant synergistic benefits as the OneBill business was successfully migrated onto XLN’s operating platform.
Under our investment, XLN’s turnover rose from £30m to £54m in two years while EBITDA increased from £3.5m to £12m. This was achieved through operational cost savings of around £2m, the OneBill acquisition and organic growth in the core XLN business. Customer numbers grew to 117,000 from 70,000, and new products were launched, including internet security software and mobile phones, allowing greater cross-selling of products to customers.
Ringing in excellent returns – After receiving several approaches from interested parties, a sale process was launched. We received strong interest from both trade and private equity bidders. XLN was sold for £77.25m to ECI in a secondary MBO. The exit in two-and-a-half years generated a 4.5x cash multiple and an IRR of 81%. It was an excellent return for the shareholders and enabled Christian to buy out his co-founder.