INTERNET service provider Eftel has announced an acquisition deal under which majority ownership of the Perth business will pass to the shareholders of Melbourne-based Club Telco Pty Ltd.
INTERNET service provider Eftel has announced an acquisition deal under which majority ownership of the Perth business will pass to the shareholders of Melbourne-based Club Telco Pty Ltd.
Eftel said it had reached an in-principle agreement to acquire Club Telco, which generated about $28 million in annual turnover.
Once Eftel and Club Telco merge, the combined group will have 120,000 active services, an annual turnover of $55 million, and 300 staff in Melbourne, the Gold Coast, Perth, Kuala Lumpur and Manila.
Club Telco was established by the founders and directors of Dodo, which describes itself as Australia’s largest privately held telecommunications company.
Eftel will pay for the acquisition by issuing shares to the vendors.
In addition, the new shareholders have agreed to inject $2.1 million of additional equity capital.
Upon completion of the deal, the vendors and new shareholders will hold 75.6 per cent of the merged business, with current Eftel shareholders ending up with the remaining 24.4 per cent.
A sharp jump in Eftel’s share price means the pricing of the deal is looking favourable for the new investors.
In particular, the shares will be issued at 1.243 cents each, which is a 12 per cent premium to the one-month weighted average price.
However, it is well below the current share price after the market pushed the stock to as high as 3.3 cents, the highest level since mid 2009.
The deal adds to multiple smaller acquisitions completed by Eftel over the past decade.
Its latest deals were with NSW regional operator Colour City, which had around 500 active accounts, and Melbourne-based Rabbit Internet.
The company has grown to be a national top 10 internet service provider, though it has struggled to turn increased revenue into profit.
In the half-year to December 2010 it reported a net loss of $1.3 million on revenue of $15.2 million.
Eftel executive chairman Simon Ehrenfield said the proposed transaction brought the most significant opportunities to date to Eftel’s growth plans.
“Apart from being our largest ever merger or acquisition deal, the proposed transaction introduces a fresh controlling interest in the form of the key stakeholders in Dodo,” he said.
“They are, without peer, this industry’s organic growth champions.”
Dodo chief executive Larry Kestelman said ClubTelco and Eftel had similar customer profiles focusing on the premium telecommunications market.
“The synergies do not stop there,” he said. “The two businesses together constitute sufficient scale to compete effectively in the market. We are really excited by the possibilities this deal presents.”
The merger continues the rapid consolidation among internet service providers. The number of ISPs in Australia fell from 500 to 300 last year, according to research by iiNet.
The sector is dominated by a handful of players, with Telstra having 42 per cent of national fixed broadband market share.
It is followed by Optus (18 per cent), Perth-based iiNet (12 per cent) and Adelaide-based TPG (9.5 per cent). After that come players like Internode, Primus, Eftel and another Perth company, Amcom.
iiNet has been a big contributor to industry consolidation, with recent deals being AAPT’s consumer division and Netspace.
The company’s CFO, David Buckingham, said iiNet planned to seek further acquisitions.
