Managed data centres and hosting supplier Iomart (IOM:AIM) ‘remains an obvious target for takeover,’ according to industry insiders. That’s the view of Kate Hanaghan, analyst at respected technology website TechMarketViews. With the share price stubbornly remaining miles off previous highs of over 300p, the company may be forced to take drastic action. This could spark a change of tack in strategy, or even press institutional shareholders to push management into a potential sale of the business.

Glasgow-based Iomart has enjoyed several years of rapid growth aided by a series of clever acquisitions. But questions have been raised over the rate of organic growth. ‘Put simply, organic growth in the managed hosting part of the business had fallen to about 8% rather than the usual 12% to 15% growth,’ calculates Philip Carse, independent analyst at IT boutique Megabuyte. ‘It appears that Iomart is plateauing in terms of profitability,’ claims Carse.

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The last year has proved frustrating for both the company and its shareholders. In July 2014 possible takeover talks began with private equity-backed Host Europe, only for that indicative 300p per share offer to collapse. However, according to TechMarketViews’ Hanaghan, Iomart’s chief executive officer (CEO) and 15.7% shareholder Angus McSween subsequently claimed that a formal offer was never made and that the companies were ‘a million miles away from getting a deal done.’

Interestingly, private equity firm Toscafund, behind the recent management buyout (MBO) at UK business telco Daisy, retains a 5.8% stake in Iomart implying that a similar MBO deal may be on the cards.

Prior to the unveiling of those deal talks FinnCap’s Andrew Darley had expressed his own frustration, claiming that the ‘market fails to understand Iomart’s business, assuming it to be a me-too data centre co-location business,’ he said in June 2014. The broker’s technology and telecoms research director has been a long-run supporter of the company and its growth strategy. Iomart is ‘in fact a very high (45%-plus) earnings before interest, tax, depreciation and amortisation (EBITDA) margin managed services business delivered from an asset base which it also owns,’ the analyst argued.

A potential catalyst for the stock could come from overseas. Last week (1 April) web hosting giant GoDaddy (GDDY:NYSE) priced its IPO above expectations at $20 per share, and they’ve since leap 29% to $25.80 amid robust investor appetite. Iomart’s Easyspace arm operates a similar model to GoDaddy and investors will be hoping some of the US group’s sparkle rubs-off. Megabuyte recently pointed out the valuation gap between Iomart and several peers, calculating Iomart’s enterprise value (EV) to EBITDA at 8.1-times, ‘somewhat below the 10.6-times of Rackspace (RAX:NYSE) and the low to mid-teens of most of its data centre peers,’ concludes Carse.

We remain long-term fans and see this as a new buying opportunity at 205p.