JSE-listed alternative telecommunications provider Huge Group has signed a memorandum of agreement in terms of which it intends acquiring 100% of specialist ICT company Centracom for R81,6m.
Ninety percent of the proposed acquisition will be settled through the issuing of new shares.
Under the agreement, Centracom shareholders have granted Huge Group an exclusivity period of 180 days in which to negotiate and finalise the proposed transaction. The agreement is subject to the fulfilment of a range of conditions.
The acquisition, assuming it goes ahead, will increase Huge Group’s customer base by 20% to 13 000 and grow its number of billed minutes by 50%.
In addition, it will enhance annuity revenue cash flows and lead to a “substantial increase in the number of connections to corporate and residential customers”, it said in a statement to shareholders.
It will also result in improved purchasing power with upstream suppliers and allow it to compete more aggressively with companies providing voice-over-Internet protocol services, along with a platform to provide additional products and services such as data and cloud-based services to its existing customer base.
Costs will also be reduced by merging the businesses and eliminating duplication, it said.
“The levels of synergy in terms of eliminating duplicated costs within the two businesses are high and the board of directors of Huge therefore believe that the Centracom purchase consideration is priced at a historical price-earnings multiple of approximately 6,6 [times]when measured for the year ended 28 February 2015.”
As at 28 February 2015, Centracom’s net asset value was R2,1m, it generated profit after tax of R4,4m and cash flow from operations came in at R8,7m.
Huge Group CEO James Herbst said the acquisition provides it with “alternative technology choice in the provision of voice services and it diversifies our risk”.
“While we have a successful business model built on the provision of fixed-wireless voice services using GSM and fixed-cellular customer premises equipment, we will do well by being able to offer, as an alternative, a voice-over-Internet protocol service,” he said.
The acquisition will also allow Huge Group to bring a data service to market “without having to go through the pain of costly mistakes”. It will also give it exposure to the cloud services market. — © 2015 NewsCentral Media