So iiNet has committed to buying Canberra-based telco, TransACT, but is it getting a good deal?
On Monday, Perth-based iiNet has announced it will acquire TransACT for $60 million with the deal to be finalised by November 30.
The Perth-based ISP cited TransACT’s strong financials, network assets, low churn rates and growth in the corporate and business customer segment as some of the reasons for buying the company.
TransACT has an expansive backhaul network in the ACT and regional Victoria. It began with the rollout of “fibre-to-the-curb” technology but eventually moved onto deploying ADSL and HFC networks.
Ovum research director and telco analyst, David Kennedy, said the move demonstrates the trend of consolidation in the ISP market and the desire for players to build scale before the National Broadband Network (NBN) comes into full swing.
“The uncertainty of TransACT’s future is the NBN,” he said. “TransACT needs to become part of a larger whole in order to have a future in the NBN world.
“NBN’s infrastructure will be rolled-out nationally including in TransACT’s footprint and the telco will need to be part of a larger national brand in order to compete in that environment.”
Kennedy saw the NBN as a motivation for TransACT to sell up, but despite listing strong financial results as a reason for acquiring the telco, iiNet acknowledged the Canberra-based company’s profits have been on a decline.
TransACT recorded $2.1 million in profit in the last financial year, down from $4.8 million from the previous year.
But iiNet wants to focus more on TransACT’s $80 million recurring annual revenues and earnings before interest, tax, depreciation and amortisation (EBITDA) of $17 million.
iiNet chief financial officer, David Buckingham, pointed out TransACT has invested a lot into its network which inevitably ate into the net profit.
“The difference with what we are buying going forward is we are not paying for all that historic network load,” he said. “…We are paying essentially $60 mill for biz including the network and that is the cost to us as a business and that is what we will have to expense over time.”
With an intention to expand further into the corporate and government space, TransACT’s existing presence in those sectors also adds value to the acquisition, according to iiNet.
In the past five years, TransACT has started grown its Federal and state government customer base from zero to over fifty. It also has relationships with the National Library of Australia and the National Gallery of Australia, supplying them with a suite of telco services.
Kennedy conceded iiNet is paying a reasonable price for TransACT.
“Last year iiNet acquired Netspace, which was an ISP with around 70,000 customers for just $40 million,” he said. “However, in this case, iiNet is getting a lot of infrastructure which it did not get with the Netspace purchase.”
“I think the amount of $60 million seems to be in the right ballpark.”
TransACT CEO, Ivan Slavic, will stay on-board the company after the acquisition is finalised.