Exits – Dataflex and VegaStream continue MTI exit bonanza

UK early-stage technology specialist MTI chalked up two exits in March as well as holding a GBP50 million first close for its fourth fund (story, page 17).

Dataflex Holdings, a supplier of technology for the alternative telecoms market, joined the London Stock Exchange’s TechMARK index trading at 195p per share, which valued the company at some GBP203 million. At the close of the first day’s trading Dataflex’s valuation had risen 42.3 percent to around GBP185 million. MTI, which invested GBP700,000 for a 40 per cent holding in Dataflex when management bought out the company from Amstrad in 1997, retains a substantial’ holding in Dataflex.

A few days later, Pace Micro Technology acquired VegaStream, a Voice over Internet Protocol (VoIP) specialist, for an initial consideration GBP19.7 million. The consideration was satisfied in the form of Pace shares; a further share payment, up to a total consideration of GBP40 million, is dependent on VegaStream’s future performance.

MTI, which owned 45 percent of VegaStream through its third fund, is not subject to a lock-in period for its holding in Pace.

MTI director Ernie Richardson says the VegaStream deal is a perfect example of virtual venture capital’. The firm was approached in 1998 by serial entrepreneur Mike Hafferty, now VegaStream’s CEO, and Patrick Christian, with an idea for an Internet telephony product. “At that time there was no product, no company and no premises”, says Richardson. MTI provided GBP1.2 million of equity, together with loans to transform the concept formulated round MTI’s boardroom table into reality. “We knew that, almost inevitably, our exit from this investment would be an early-stage trade sale”, Richardson explains.

Through the acquisition of VegaStream, Pace is adding VoIP to its ability to deliver digital satellite, cable and terrestrial television into the home and broadening its focus into the wider SME and corporate market. Under its new ownership, VegaStream secures the infrastructure to accelerate its expansion into the international VoIP market. MTI meanwhile, has, on paper, achieved an IRR well in excess of 200 per cent on the transaction.