On 1 September Gamma's board recommended a cash offer of 1,120p a share from Bradbury Bidco, a company controlled by funds advised by Epiris, with HarbourVest and Limewood alongside as co-investors. That values the equity at a little over £1bn. If shareholders, the court and half a dozen regulators agree, Gamma leaves the public market in the first half of next year.
I want to start by saying well done, and I mean it. Gamma has been built into a business turning over £645.8m last year, growing at 11%, with 89% of its revenue recurring and more than 1,500 UK channel partners selling it. A £1bn cash exit is a result, and the people who did the work earned it. There are serious, capable people there, and nothing that follows is about them. It is about the model, and it is written for the partners - Gamma's first among them, but far from only them - who woke up on 1 September to find the ground under their supplier had moved, and who are now, quite reasonably, thinking about their own futures.
We have written about this before
Last July I wrote about buy-and-build: acquisitions funded with cheap debt at eight to twelve times EBITDA, and interest cover collapsing. Survivability, I argued, deserves a premium.
In April I wrote about enshitification, the point at which a business stops creating value for its customers and starts extracting it from them. Extraction is not a moral failure. It is the equilibrium of a commoditised market with capital to service, and public markets had already marked carriers down after overpriced acquisitions.
And in March I wrote that scale does not deliver margin in this industry, that seven to nine in ten deals fail, and that integration destroys the efficiency it was meant to create. Two years before that I had already called the pattern "debt funded roll-ups".
Three threads. On 1 September they tied themselves together in one announcement.
The premium in context
The headline was a 53% premium to the undisturbed closing price of 732p on 7 April. But a premium is measured from wherever the price happens to be standing, and the question is how it got there.
Gamma's shares peaked at around 2,350p in September 2021. The price the premium is measured from was down roughly two-thirds from that peak. The offer, at 1,120p, is under half of what the market once thought the business was worth.
So the market had made its decision about this business years before Epiris did. The board's stated reasons for recommending the offer include cash certainty and the "removal of execution risks from standalone strategy", and other proposals were on the table. A board with a good, growing, cash-generative business chose a certain pound today over its own plan for tomorrow. It tells you what the board believed the standalone plan was worth, and what the market had been telling them for several years.
Where the money comes back from
A fund does not buy a business to own it. It buys a business to sell it, in a few years, for more than it paid, usually having borrowed part of the price to do so. The interim facilities for this deal come from Ares. How much was not disclosed, but the shape is the shape. A price has been paid, and it has to come back to the fund, with a return on top, from somewhere.
There are only three somewheres. Price: charge the existing customers more. Cost: spend less on serving them. Growth: win more of them, or sell them more.
If you are a channel partner, you are on the receiving end of two of the three. Price is your margin. Cost is the service your customers experience and the support you rely on. Growth is the one everybody hopes for, and it is the hardest, which is why the other two get pulled first.
Which brings me to the AI. The announcement promises "increased investment in product innovation and AI adoption", and Gamma's own results in March leaned on AI as the growth lever: an AI concierge that answers calls, early voice-agent revenue in Germany growing fast off a small base, and management, to their credit, warning against extrapolating from it. Good. It is the right thing to be building and I would say so whoever was building it. But under a fund that investment sits on the same P&L as the debt service, and that P&L has to produce a return inside the fund's timetable. AI spent on growth is a bet that pays back, if it pays back, in years. AI spent on taking cost out of the business pays back with something close to certainty, on the cost line, which is the line the fund most needs. Which kind does the arithmetic choose?
As I argued in July, that is the distinction that decides who survives this. The companies AI finishes are the ones that use it for replacement and cost-out. The ones it makes are the ones that use it for amplification, so the same people do a great deal more, and amplification compounds: by the time the second car pulls away from the line, the first is not merely ahead, it is over the horizon. Compounding cannot be bought late, and it cannot be bought at all from a standing start, because it has already started elsewhere. The alternative I described in July is to spend telephone numbers buying customers instead of building, which is the model this whole post is about, one level up.
The announcement says there will be "no material headcount reductions" in the first twelve months, and no material changes for channel partners. I believe that is sincerely meant. I also note that twelve-month assurances have twelve-month horizons. Completion is expected in the first half of 2027. Count forward from there.
None of this needs bad faith. Nobody here is a villain. It is what the structure does: debt has to be serviced, a return has to be earned, an exit has to be prepared, and the people inside the structure, however decent, execute what it requires. That is what I meant in April. Extraction is an equilibrium, not a choice.
The third test
In July I gave you two tests for a supplier. Capability: have they already built what you need? Alignment: does their growth depend on winning the customers you are chasing? I want to add a third, because 1 September made it unavoidable.
Who owns your supplier, what do they need from it, and by when?
A business is run for its owners. That is not cynicism, it is more or less what company law says. When a supplier is owned by a fund, it is run for the fund's return, on the fund's timetable, and every partner of that supplier is a line in the model that produces it.
A side-point. Gamma's people, like those at most listed companies, have had share schemes, and I hope a good many of them see something from this. But the directors' own holdings committed to the deal come to about 0.13% of the company, and the equity is overwhelmingly institutional. The result belongs to the people who built it. The cheque, overwhelmingly, goes elsewhere.
Simwood is owned by the people who work in it. There is no external fund. We are largely debt free, and we published our interest cover last year rather than ask you to take my word for it. Apply the third test to us and the answer is short: the people who need a return from this business are the people answering your tickets, and what they need is for you to still be here in ten years. That is a different set of incentives from a fund with a fund life.
Three things to do this week
First, read your change-of-control and termination clauses now, not when the deal completes. Know what notice you can give, what notice you can be given, and what happens to your numbers and your customers' data if you leave.
Second, send the You buy from who questions to your supplier in writing: whose network your traffic ends up on, who else is in the path, and what they are building next year that you are scoping to build yourself.
Third, add the new one to the same email. Who owns you, what do they need from the business, and by when do they need it? A supplier who cannot answer that plainly has answered it.
The ground moved
If you built your business on Gamma, or on any supplier that has since been bought, you did nothing wrong. You chose a sound business on the information you had. The ground moved under you. It moved because the public market decided what the business was worth, a board decided cash was better than the plan, and a fund decided it could make the numbers work. None of those decisions involved you. Every one of them lands on you.
So the question is not whether you were foolish then. You were not. The question is whether the next contract you sign is with a business whose owners need you to win, or with a business whose owners need something from you. One of those is a partnership. The other is a line in somebody else's model.
I know which one we are. Who owns your supplier?