In a bid to turn around its flagging share price, data communications provider NetComm has acquired Mike Boorne Electronics (MBE), manufacturer of Spirit modems, in a deal valued at around $1.5 million based on NetComm's current share price.
The share-swap transaction sees MBE receive 5 million ordinary shares (worth $300,000 at 6 cents a share), as well as options on a further 4.75 million shares, exercisable if NetComm's share price reaches 25 cents or more. This takes MBE's existing stake in NetComm from around 3 per cent to nearly 11 per cent.
Under the terms of the agreement, MBE will be operated as a separate business entity, with its founder and managing director, Mike Boorne, taking up the position of executive director on NetComm's board. Although the companies are expecting cost savings from merging their back-end IT infrastructure and inventory logistics, the sales staff and product branding of each company will remain quite separate, according to David Stewart, NetComm's managing director.
With NetComm currently selling into Coles Myer, Harvey Norman, OfficeWorks and a selection of Dick Smith Powerhouse stores, the acquisition extends the vendor's customer base to include the rest of Dick Smith and the Tandy retail chain. In addition, Stewart said the deal rounds out NetComm's product offerings to include security and other peripherals. NetComm positions itself in the top end of the small and medium business market, whereas Spirit products are traditionally sold at a lower price point.
The acquisition also enables NetComm to leverage credit relationships with manufacturing companies in Asia; a move that NetComm hopes will free up cash flow and enable it to accelerate growth.
With the collapse of a number of manufacturers such as Edge Technology, Asian manufacturers are reluctant to extend credit to overseas companies and are forcing them to pay on a cash-on-delivery basis.
While Stewart said NetComm has established lines of credit with some of the factories to which it outsources manufacturing, he hopes to leverage MBE's strong credit relationships with a number of key manufacturers to avoid having money tied up for extended periods of time.
As an existing shareholder in NetComm, Boorne said it is in MBE's interest to see NetComm bolster its shareholder value. NetComm's shares have taken a hammering over the past 12 months, from a high of around 25 cents to a low of under 4 cents, due to the general downturn in tech stocks and a failed bid to become a telecommunications carrier.
"The whole exercise is to turn NetComm into a dividend-paying company," Boorne said. "It's all about profitability."