Inabox has offloaded its direct business to broadband network operator 5G Networks in a deal worth $5.7 million, which includes Anittel and its struggling Hostworks subsidiaries.
The price tag represents 2x EBITDA after synergies are recognised, and will provide 5G Networks with an additional $43 million in revenue, according to the company. 5G Networks expects to exceed $55 million in annual revenue once the acquisition is completed.
Inabox acquired managed cloud hosting firm Hostworks for $7 million in February last year. Nine months later, Inabox revealed that poor performance from Hostworks would have a significant negative impact on the entire group's financial performance.
As a result, Inabox was forced to cut 10 percent of its workforce in order to recoup $2 million in annualised cost savings.
Inabox bought Anittel for close to $10 million in November 2014, which gave Inabox the opportunity to expand its telco wholesale business with IT and cloud services. Anittel was a two-time CRN Fast50 winner, having scooped the top prize in 2010 and 2011.
The direct business employs 200 staff across 12 offices in Australia and generated $45 million in revenue I FY18, but had an overall negative impact on profitability.
5G Networks said there would be substantial cross-selling opportunities that arise from the acquisition by offering its current network and cloud services to existing Inabox customers.
"We pursued this acquisition because it was exactly what we needed to rapidly expand our core business streams and represents great synergy with our existing business," said 5G Networks managing director Joe Demase.
"We have expanded our geographical coverage in our key competencies – cloud, data and managed services. The acquisition of IAB's direct business is accurately aligned with our acquisition strategy and 5GN is extremely excited by the positive future that lies ahead."
Inabox chief executive Damian Kay said the sale would allow the company to focus on its core indirect business, which generates approximately 12 percent of the group's EBITDA margin.
"We are delighted to have reached an agreement with 5G who seemed like a natural buyer for the direct business," said Inabox managing director Damian Kay. "5G's leadership team has deep experience working in the IT and communications technology sector and their business seems very complementary to the direct business."
Inabox said it is still in confidential discussions relating to a possible sale of its indirect business as well, but there's no guarantee an acquisition will eventuate. The indirect business provides wholesale and white-labelled telecommunications solutions to more than 450 retail service providers.
5G Networks offers its own wireless broadband network with fibre access which is marketed as an alternative to the NBN. This marks the second acquisition for 5G Networks this year after acquiring Asia Pacific Telecommunications Group (APTel) for $6 million in March. 5G Networks also bought Melbourne-based managed services provider Enspire when it listed on the ASX late last year.
Inabox's share price jumped nearly 50 percent in June when the company revealed it was in talks with potential suitors for possible acquisition. Inabox's shares were trading at 69 cents each before entering a trading halt on Friday, while 5G networks' shares sold for 58 cents each."
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5GN Share price has dropped since the announcement could relate to the fact that the acquisitions of these two Comp in the past have not yielded positive results.it is a massive uptake of employees, and geographical distances, large entities of unknown outcome.there is lots of overheads and risks by adding up these mammoths. which are high on revenue but low on income ( if at all)
the sale of these two Entities is a relief for the failing IAB.
My hope is that 5GN management has done their DD, rather than just the rush to grow at any price.
and will find those two comps as a base to cross-sell and build scale.
got to trust management, and as always Time will tell.
I m trading carefully as i enter this company.
5GN Price at posting:
55.0¢ Sentiment: Hold Disclosure: Held
(20min delay)
