Web hosting company, Melbourne IT, has purchased local rival, NetRegistry, in a cash and scrip share purchase agreement worth $50.4 million.
The agreement will give NetRegistry 4.99 to 9.99 per cent stake in Melbourne IT and a cash amount between $38m and $45m.
It will also include the use of a new $20m credit facility. Including the $15m in escrow from the sale of its DBS unit for $152.2m, Melbourne IT claims it will remain in a net cash positive position once the transaction is completed.
NetRegistry is an Ultimo based retail online services provider for small to medium businesses (SMBs). The company was founded in 1997 by current chief executive officer (CEO), Larry Bloch, who will now join the Melbourne IT board as a non-executive director.
The acquisition will also see NetRegistry’s “key management team and staff” retained.
The decision to purchase NetRegistry is in line with last year’s strategic review in which Melbourne IT said it will further invest in the SMB space. Melbourne IT acting CEO, Peter Findlay, brands the buy a “strong step in that direction.”
The agreement follows a 2013 calendar year during which Melbourne IT’s net profit after tax (NPAT) fell 29 per cent to $6.2m from $8.7m. Earnings before interest, tax, depreciation, and amortisation (EBITDA) fell by 43 per cent to $5.3m.
Total revenue faced a year-over-year (YoY) decrease of five per cent to $103.4m.
Melbourne IT has posted guidance of 2014 EBITDA between $10m and $12m, sans contribution or adjustment from NetRegistry. The company claims this will be driven by the 12-month cost benefit of restructuring initiatives and improved revenue performance in the second half of fiscal 2013 over the previous year.