Perth-based Internet service provider (ISP), iiNet, is set to double its staff and customer numbers with the acquisition of New Zealand rival ihug. Completion of the deal is expected during the third week of October, following a meeting of iiNet shareholders.
The deal will cost ASX-listed iiNet $30.1 million in cash – which it raised through institutional investors after suspending stock exchange activity last week – and $23.7 million in shares, which are valued at $1.75 each.
In terms of shares, the owners of ihug will see their interests carried over into the newly merged operation. The Wood family – Tim, Nick and father John – will own about 20 per cent of the business. CallPlus, which had a 10 per cent stake in ihug, will be left with a 3.4 per cent share in iiNet.
The new trans-Tasman entity has a combined staff of about 340 employees, all of who will be retained, according to iiNet managing director, Michael Malone. More importantly, it has a customer base of about 300,000 – 170,000 of those from ihug.
Malone said iiNet would eventually split its processes between Perth and Sydney with head office functions like finance located in WA and the sales team based in NSW.
“ihug has about 60 guys in Sydney and, after talking to them, it became clear they have an excellent sales culture,” Malone said. “They have a big reseller base and we would love to see them taking on more of our sales work in Australia.”
The company will retain its headquarters in Auckland and continue to operate as a standalone business with a presence in the New Zealand and Australian markets.
“They’ve got a long-term client base and I can’t see any advantage in shutting down their brand,” Malone said. “They have good brand recognition on the east coast [of Australia] and trading as iiNet in New Zealand would add no value.”
iiNet is the second largest provider of broadband ADSL in Australia. ihug is the third biggest ISP in New Zealand and makes the top 10 in Australia due to its presence on the east coast.
Malone estimated the iiNet customer base would now be split fairly evenly between WA, the east coast and New Zealand.
He said the eastern seaboard was the biggest area of potential growth because it had the largest population and would be the main location where iiNet would seek continued growth.
Despite having succeeded in such a large takeover, iiNet would not be resting on its laurels and was actively seeking further acquisitions.
“We see the next 6-12 months a window for our business,” Malone said. “The market is turning to broadband and the small to middle-sized guys are seeing this as the right time to get out.”
Malone cited Australian Bureau of Statistics figures that estimated there were currently 550 ISPs serving an Australian market of 5 million customers. It claims 3.5 million of these were serviced by the top 10 players, leaving hundreds of smaller operators to quibble over the remainder.