JSE-listed telecommunications company Huge Group has reached an agreement to acquire ConnectNet Broadband Wireless and its wholly owned subsidiary, tier-one Internet service provider Sainet, for at least R275m, pending a due diligence investigation.
Under the proposed deal, Huge Group will also take on ConnectNet debt totalling R142,9m.
ConnectNet Group, which was established in 2004, provides connectivity to the card payment terminals of South African banks through secure dual-Sim connectivity over cellular data networks.
The company has also expanded into other markets, including ATMs, integrated point-of-sale terminals, medical/script verification, telemetry applications, micro-lending applications and cash vaults.
Sainet Internet, meanwhile, is a network service provider and data communications company.
Huge Group described the deal as “transformative”. ConnectNet reported consolidated earnings before interest, tax, depreciation and amortisation (Ebitda) to 29 February 2016 of R68,6m and after-tax earnings (excluding exceptional items) of R37,4m. Revenue was R180,3m.
“In our integrated report for the year ended 29 February 2016, we stated that we wanted to grow the business of Huge Group both organically and via the acquisition of complementary businesses,” said Huge Group CEO James Herbst in a statement.
“The combination of ConnectNet and Huge Group is compelling. Firstly, Huge Telecom is always on the lookout for effective channels though which to market its fixed-location-voice-only telephony service and the bulk of ConnectNet’s 29 000 customers fit squarely into our target market of customer. We have installed more than 35 000 telephone lines across our own base of more than 13 000 customers and Connectnet will assist us in expanding our customer base and the number of telephone lines we service significantly,” Herbst said.
“Secondly, we have been actively searching for the right Internet data service that we can take to our existing customer base. It has been an obvious gap that we have been at great pains to fill. Sainet will create a critical entry for Huge into the data market,” he added.
The acquisition of the ConnectNet will augment the senior management capacity of the enlarged group by adding more new skills, the company said.
ConnectNet has paid good dividends in recent years, representing more than 40% of Ebitda in the 2014, 2015 and 2016 financial years.
Under the deal, 45% of the initial purchase consideration, or R123,8m, will be paid by Huge to the relevant shareholders in cash, raised through the issue of shares to certain third parties already identified by Huge.
The rest of the initial purchase consideration (R151,3m) will be settled by Huge through the issue of shares.
The purchase price may be subject to an upward adjustment should the cumulative aggregate profit of the ConnectNet for the financial years ending February 2018, 2019 and 2020 exceed 120% of a three-year cumulative profit target.
On the other hand, it may be subject to a downward adjustment should the target be less than 80% of three-year profit targets. — © 2016 NewsCentral Media