UKCloud acquired: Public sector specialist finally bags investment from current chair and private equity after reporting steep losses

Wolves no longer at the door of struggling Brit cloud slinger

Updated Private investors led by current chairman Jeff Thomas have bought loss-making public sector service provider UKCloud for an unspecified sum, ending the months-long pursuit for potentially life-or-death funding.

Hadston 2 Limited, set up by Thomas, is joined by BGF Group plc and Digital Alpha, buying a company that has three brands selling multi-cloud services to clients including central and local government, police, defence and the NHS.

"The funding provides a strong foundation on which to assemble a portfolio of innovative businesses promoting the ethical and sustainable use of data to drive positive change in our communities and economy," said Thomas in a statement.

"Organisations and governments increasingly share a belief in these crucial outcomes and I am deeply excited to unveil more information about our growth plans and new direction in the very near future."

The sum paid was not revealed, but according to sources and judging by the last set of company accounts, filed late by UKCloud in September, Hadstone was itself trying to raise £30m. The business was not exactly in rude health, and external funding was essential.

In the year to 31 March 2020, UKCloud reported a revenue increase to £38.2m from £37.1m in the prior year, however it swung to a loss of £17.4m from a loss of £2.3m. UKCloud said this was due to "reduction in usage by a small number of customers, as well as increasing investment in sales, marketing, development and the expansion of the platform."

UKCloud stated in the P&L accounts that it needed "approximately £30m of financing for investment in order to generate sufficient cash from trading to offset its capital expenditure and debt service cost, in addition to more immediate working capital."

It also stated in the document, filed in September 2021, that its "current cash resources, together with facilities available for drawdown allow for approximately three months until the first tranche of additional financing would be required..."

"[S]ince the Directors' assessment is dependent on the Group raising further funding that is not yet secured, the directors have concluded that there exists a material uncertainty that may cast significant doubt on the Group's ability to continue to operate as a going concern."

The board appointed advisors in September to help with monitoring and controlling working capital requirements, getting a £2m financing inflow from an existing agreement and "negotiating a partial payment holiday on the repayments of principal due under this facility," the accounts confirm. These advisors were also to negotiate a deferred payment plan for various PAYE and VAT liabilities with HMRC.

A month earlier, in August, UKCloud had made 25 staff redundant, according to sources. One told us a lender had imposed terms to reduce headcount as UKCloud was unable to pay certain debts. Another had said at the time that UKCloud was "awaiting a new investor to keep the company afloat".

Uncertainty then spread and in September it was alleged by public sector sources that the Cabinet Office had put UKCloud clients in government on high alert amid industry talk of a potential collapse.

Commenting on UKCloud's 2020 results previously, Megabuyte noted "increasing competition depressing revenue growth and margin, with growth investments hitting profitability, with payback in service expansion yet to come through."

"On paper, the subsequent fiscal 2021 should have benefited from the pandemic, with all the hyperscalers barely missing a beat in terms of growth and with the UK public sector maintaining existing spend as well as investing in new COVID-related projects, many of which sat in the cloud," the analyst added.

UKCloud competes with the public cloud giants AWS, Microsoft and Google, as well as a plethora of smaller providers. It signed a Memorandum of Understanding for agreed cloud pricing in June 2020 with UK.gov.

The organisation has three brands: UKCloud (central and local government); UKCloud Health (central health bodies); and UKCloudX (Defence and National Security). As such, today's agreement will need clearance from UK government, subject to the National Security Investment Act, but given the continued involvement of Thomas, we can't see a problem.

It operates six data centres and provides a Core Platform (IaaS and PaaS must clouds) and a Tier 2 Platform (aka SECRET). It also sells professional services. Some 300 firms including SIs, MSPs and ISVs sell UKCloud's services.

UKCloud also provides bespoke solutions for government clients but a source told us customers were "asking for complex PoCs (proof of concepts) which are taking huge amounts of time, money and tooling" and in some cases the customer went elsewhere anyway.

We asked UKCloud CEO Simon Hansford to comment in finer detail on the investment, including the shareholding mix, but he has yet to reply.

In the press release he noted: "This investment is a significant milestone for UKCloud, funding the business through to profitability and accelerating the development of industry leading capabilities to help organisations of all sizes embrace the obvious benefits of cloud and digital transformation."

UKCloud was incorporated in 2011 by ex-Attenda CTO Hansford, along with Ark Data Centre founder Thomas, and Phil Dawson and Jeremy Sanders. Backers included baldy drummer Phil Collins, and tennis players Andy Murray and Tim Henman.

Today's agreement can be seen as a vote of confidence. ®

Updated at 14.37 UTC on 21 January 2022 to add:

Hansford sent us a statement, confirming it "regrettably" reduced headcount in August. "We are delighted that, with the new funding, we will be able to make a significant investment in people and a concerted recruitment drive will now begin to expand the team."

He said customers and partners had "shown overwhelming support" for the sale, which "has given some the confidence to place new orders with us in the coming weeks".

"UKCloud has a positive and constructive relationship with the Cabinet Office, and worked closely with them whilst there was some perceived uncertainty. The new investment ensures that UKCloud is funded through to profitability.

"The commercial terms of the deal are not being disclosed but UKCloud’s Audit Accounts will provide further detail when filed in due course. In the very near future, we shall be able to share details about an exciting direction."