Melbourne IT has sold its Digital Brand Services division to Corporation Service Company (CSC) for $152.5 million cash consideration.
On March 12 Melbourne IT entered a trading halt on the ASX based on the outcome of a strategic review of its operations, which it announced in November last year.
The sale price presented a valuation of 16x the division's 2012 EBIT of $9.5 million.
"While this was not a business that we had specifically earmarked for sale, given the value creation provided by the transaction, this was an opportunity which could not be ignored,” Melbourne IT CEO and managing director, Theo Hnarakis, said.
“The transaction has crystallised a value for the business almost equivalent to Melbourne IT’s current market capitalisation, and represents a strong multiple of earnings relative to other recent transactions for this type of business."
About 10 per cent of the $152.5 million purchase price will be held in escrow for 15 months.
Net proceeds from the transaction will depend on Melbourne IT’s capital gains tax liability, transaction and other associated costs, and other sale related adjustments, however are expected to be in the order of A$135-140 million.
After retiring outstanding debt of $US35 million, Melbourne IT will consider a range of capital management options as a result of the sale.
Corporation Service Company provides business, legal, and financial services. In a statement, its vice president, Jim Stoltzfus,said it was attracted to the global scale and capabilities of DBS to combine with CSC’s corporate domain and online services.
Hnarakis said the management and board were now concentrating on updating the strategic plan for the business following the sale to provide clarity for shareholders before its AGM in May.
"We are confident that Melbourne IT’s remaining business divisions will benefit significantly from the arrival of new gTLDs, the completion of the transformation program, and management’s clearer focus on executing our plans,” he said.
The proceeds of the DBS sale will be realised in Melbourne IT’s 2013 financial year which began January 1, 2013. In the interest of shareholders, it has decided to suspend the Dividend Reinvestment Plan while the strategic review completes.
Melbourne IT was advised on the transaction by King & Wood Mallesons and Lazard.
DBS provides online brand protection and consultancy services and was created in 2008 when Melbourne IT combined its Corporate Brand Services division with the Verisign DBMS business, which it acquired for $US50 million.