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Cable & Wireless in talks to acquire 2e2

Private equity backers holding out for £450m

Cable & Wireless Worldwide has opened acquisition talks with systems integrator 2e2, according to industry insiders.

Sources reckon that long term 2e2 backer Duke Street Capital (DSC), which acquired 2e2 from venture capitalist Gresham in September 2006 for £130m, is edging toward its five-year exit plan.

A second private equity firm Hutton Collins bought a stake in 2e2 last year for £85m to fund the acquisition of reseller Morse and provide additional working capital.

Talks between the telco vendor and 2e2 are understood to have begun some weeks ago, industry insiders told El Reg, as C&W WW looks to move from being a pure play telco to build a broad IT infrastructure services biz.

"The figure bid [by C&W WW] is £360m," claimed a source, "but the investment firms behind 2e2 are holding out for £450m".

The major telcos are desperate to play in the cloud game. NTT acquired integration behemoth Dimension Data last summer for $3.2bn (£1.95bn).

Vodafone was rumoured to have sniffed around 2e2 last year in the weeks before it took over Morse, and many in the industry expected the joint venture with O2 - creating O2 Unify - to be a precursor to an acquisition of 2E2.

Colt Telecom became simply Colt last year as it wanted to move beyond its roots and diversify into services, taking on board former Computacenter services boss Simon Walsh as chief executive.

In May, 2e2 UK Ltd - the trading arm - released numbers for the year to 31 December 2010, with sales up 9 per cent on a like-for-like basis to £327m and EBITDA climbing 26.3 per cent to £37.9m.

The firm said it used extra profits from the Morse transaction to pay down some of its £150m bank debt.

The full-year 2010 accounts for 2e2's Holdings, the ultimate parent of 2e2 UK Ltd have not yet been filed at Companies House, but in 2009 it had sales of £201m and a loss before tax of £35m.

The market capitalisation for C&W Worldwide is currently £1.37bn, and in the last filed accounts for the year to 31 March, sales slipped 0.4 per cent to £2.25bn, EBITDA went up 2.6 per cent to £442m, and profit before tax grew 23 per cent to £143m.

2e2, Duke Street and C&W WW refused to comment, while Hutton Collins was unavailable to comment. ®

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