End of the line for CityReach

The market has been stunned by the sudden collapse of the internet infrastructure company that last year made the headlines with a massive financing round.

CityReach, the European web hosting and co-location company, yesterday called in receivers KPMG Corporate Recovery, to handle its administration and sell off assets.

Set up in 1998, privately owned CityReach received a total of £249m (E389m) of funding to roll out an ambitious international expansion strategy. In 2000, the company rose to fame when it raised £106m from leading private equity investors including Chase Capital Partners, Morgan Grenfell Private Equity, Vulcan Ventures and Merrill Lynch Equity Partners. The fundraising was praised as the largest round ever completed for a UK technology company.

At the time of the fundraising, CityReach enjoyed such popularity with investors that it was able to raise about twice the amount it had initially come to the market for. James Lewisohn, the then finance director of the business who has since left the company, said the funding would enable CityReach to open as many as 20 web hosting centres across Europe, although only eight centres were built.

After plans for an IPO had to be scrapped, CityReach returned to the market in March of this year to raise another E40m. Break-even was predicted for 2002. But lower than expected demand from corporate clients for the company’s services meant that the forecasts were missed and growth disappeared.

Although the failure highlights the difficulties facing internet infrastructure companies, observers agree that a substantial portion of the losses should be recoverable by way of an asset sale.

Jim Tucker, KPMG Corporate Recovery Partner and administrator to CityReach, said: “We are working with management and are confident of selling the core CityReach sites in London, Amsterdam, Dublin, Stockholm and Budapest centres as going concerns.
“Numerous parties have already made contact with us to explore purchasing the CityReach assets in part or whole. We expect further interest from a number of other European and US companies to progress this opportunity to acquire CityReach’s state of-the-art facilities.”