Vonex shares surge 50% on acquisition of 2SG
Telecommunications innovator Vonex Limited (ASX:VN8) has entered into a binding term sheet with 2SG Wholesale Pty Ltd (2SG Wholesale) to acquire 2SG Wholesale’s business operations as a going concern.
Management views this as a strategically compelling acquisition which will allow for a range of cross-selling and up-selling opportunities, while substantially expanding Vonex’s wholesale partners from 20 to more than 160.
Investors have also recognised the benefits of the acquisition with Vonex’s shares up some 50% in morning trading.
2SG Wholesale is a telecommunications and data wholesaler based in Brisbane, Queensland which provides Australian Managed Service Providers, ISPs and System Integrators with access to the latest in hardware and connectivity solutions from leading brands.
2SG Wholesale’s mobile broadband capability provides Australian ISPs with the opportunity to sell a wireless broadband solution via the Optus 4G Network.
Integration with Australia’s premier carriers facilitates the delivery of the latest fixed line, mobile connectivity and hardware solutions country-wide.
Preserving cash and incentivising incoming management
The acquisition is subject to Vonex completing legal and financial due diligence to its satisfaction, which is likely to complete prior to January 15, 2020.
The consideration is a mix of cash and shares with a $500,000 cash component and approximately 21.5 million shares to be issued at an issue price of 10 cents per share, escrowed for 12 months.
This represents a handy paper gain of about 40% for the vendors based on Vonex’s current share price.
The conservative cash outlay helps in preserving the company’s cash position, while the share component highlights the belief that the 2SG Wholesale vendors have in Vonex taking the combined businesses to the next level and generating attractive returns for all shareholders.
Following completion of the proposed acquisition, co-founder of 2SG Wholesale, Jason Gomersall, will join the Vonex board as a non-executive director.
Gomersall is a former director of 2SG Wholesale and is the founder, chief executive and managing director of iSeek Communications.
He has long been at the forefront of the telecommunications industry and the mobile phone market since being one of the foundation franchisees of the Optus World chain of retail stores in the 1990s.
Building on more than 25 years' experience in the telecommunications industry, Gomersall has been instrumental in establishing and cementing i-Seek's commanding presence in the Data Centre market by providing services that are built on availability, agility, security and sustainable and efficient energy practices, including leading-edge power and cooling technologies.
Consequently, he brings experience in Vonex’s established markets, as well as possessing an insight into adjacent industry fields that may interest the company as it continues to expand.
Acquisition provides synergies and scale
Highlighting the benefits of the acquisition, Vonex managing director Matt Fahey said, “The acquisition of 2SG Wholesale’s established operations will provide an instant expansion of the company’s wholesale customer base, and will be highly earnings-accretive.
‘’It will empower Vonex to add value to our wholesale and retail customers through better network access, new proprietary billing and provisioning systems and the latest telco products and services.
‘’We look forward to growing more rapidly and profitably as we integrate 2SG Wholesale’s operations into Vonex’s fast-growing existing business.”
Highlighting the game changing nature of this acquisition, based on Vonex’s fiscal 2019 revenues of $9.2 million, and 2SG’s $7 million in revenues of the same period, the combination of the two businesses should at least add income of 75%.
Further, 2SG Wholesale is expected to generate EBITDA in the first financial year post acquisition (fiscal 2021) of approximately $750,000.
Notably, 2SG Wholesale’s direct relationships with Optus fixed and mobile and NBN bring direct POP (point of presence) access to several interconnects.
There will also be the potential to cross sell products and services with 2SG Wholesale's proprietary wholesale provisioning and billing platforms empowering the company to immediately expand the breadth of products offered to existing Vonex wholesale customers.
Conversely, with no voice products currently offered by 2SG Wholesale, the acquisition also provides an immediate opportunity to offer Vonex-hosted Private Branch Exchange (PBX) connections to 140 new wholesale customers.