Alphawest will gain access to the upper echelons of the managed services space if Optus completes a proposed $25.9 million buyout of the WA-based services company. But a leading analyst has warned it could sour the telco's other partner relationships.
Under the proposed deal, Optus will pay $0.68 a share to acquire a 100 per cent stake in Alphawest. It has already signed an agreement with UXC to secure an option for its 19.96 per cent share of the company.
Alphawest CFO, Joe Browne, said the two organisations had worked together for several years on IP and communications implementation deals. The takeover would give Alphawest its best opportunity to grow by providing access to a larger customer base and heftier clients.
"To be part of a group allows you to compete on certain opportunities that would be out of your league, particularly in managed services," he said. "There's strength in being part of a large organisation."
Alphawest had completed three acquisitions of its own in the past 18 months, Browne said.
The news of its own buyout was part of a bigger consolidation picture in the medium-sized services market, he said.
"This is not unique to IT services - it's part of the evolution of any industry," Browne said. "You gravitate to bigger players or remain as a focused, niche player.
"If you look at where the IT sector is headed, the growth is in convergence. The deal [with Optus] seemed like an opportune development for our company."
Browne did not rule out the possibility of future acquisitions by either company.
"We still had acquisitions as part of our strategy going forward," he said. "This opportunity could accelerate that strategy."
In an ASX statement, Alphawest's board of directors declared unanimous support for the Optus offer. The company's chairman, Hugh Beggs, said it would be an excellent fit with Optus' integration capabilities. The Alphawest brand would be retained.
Optus corporate affairs manager, Luisa Ford, said Alphawest would strengthen the telco's ability to offer end-to-end solutions to corporate and government clients. She highlighted its credentials in network consulting, integration and information management service as key attributes. Alphawest has been a member of the Optus Business Program since June. The two had previously worked together on an ad-hoc basis for customer bids, she said. Optus also partnered with NCS on services deals, Ford said.
Pending approval, the two organisations would operate alongside Optus' Integrated Business Services (IBS), she said.
"We are seeing a growing trend of government and corporate clients wanting to join IT and telecommunications needs through a single supplier," she said. "Alphawest brings capabilities that we don't have in-house."
According to ASX filings, Alphawest has about 400 staff across 10 offices in Australia and Singapore. In its last financial year ending December 31, the company generated revenues of $142 million.
Ford would not comment on possible job cuts or revenue targets.
IDC analyst, Landry Fevre, backed Optus' decision. He said the acquisition of Alphawest's IP implementation skills would fill a hole in its services line-up.
"Optus didn't have skills around IP integration," he said. "It will give them more credibility."
Optus' $25.9 million offer is tiny compared to the $333 million Telstra paid to acquire The Kaz Group in April last year.
Fevre said the acquisition was not retaliation against Telstra's services push.
"Kaz is different altogether - it had business processing services for example," he said. "Alphawest is close to what Optus knows how to do. It will be an easier integration."
One concern, Fevre said, would be the future of its existing industry partnerships. While Optus works closely with Nortel, Alphawest is a Cisco gold partner, he said. In addition, Optus had cultivated a relationship with IBM around PBX services that could also be threatened by the takeover.
"It redefines the landscape with Optus' partnerships, such as those with HP or IBM," he said. "It could mean more lost revenue from a channel perspective."
The Alphawest deal is subject to a list of conditions being met between now and the end of September.
Alphawest timeline - the road to takeover
- 1986 - Alphawest commences business in Western Australia
- May 2000 - Acquired by Solution 6
- August 2002 - Alphawest 6 purchased by a management buyout group for $18 million
- September 2003 - Buys Queensland-based information management provider, PowerPlus
- April 2004 - Lists on the Australian Stock Exchange
- July 2004 - Acquires The Westbourne group in Canberra
- August 2004 - Pays $2.5 million for Inform Systems
- July 2005 - Optus announces intention to acquire Alphawest for $25.9 million