PriceSensitive

Spirit Telecom (ASX:ST1) spends $14M on strategic VPD Group acquisition

Telecommunication
ASX:ST1      MCAP $61.49M
26 June 2020 15:00 (AEST)
Spirit Technology Solutions (ASX:ST1) - Resigning Managing Director, Sol Lukatsky

Source: Spirit Technology Solutions

Spirit Telecom (ST1) has agreed to acquire VPD Group, an established voice, data and cloud services provider which operates across Queensland and New South Wales.

According to Spirit, the VPD acquisition represents its largest and most transformational transaction to date.

The strategic buy will cost Spirit $14 million, with $7 million to be paid in cash and $5.8 million forked out in Spirit shares under the first tranche payment. The equity component will be issued at 20 cents per share.

The total maximum purchase price, however, will be capped at $27.5 million, with two more tranche payments on the cards if or when VPD’s EBITDA performance exceeds performance targets over the 2021 and 2022 financial years.

Additionally, the VPD acquisition represents a management forecast normalised earnings before interest, taxes, depreciation and amortisation (EBITDA) of between $3 million and $3.5 million for FY20.

This acquisition means Spirit can create a new wholesale business called Spirit Partners. This will focus on distributing a range of products through Spirit’s channel partners across Australia.

Specifically, the Spirit wholesale business will deliver cloud-based IT and internet solutions using the Spirit X sales platform. This is timely, as VPD Group’s clients are transitioning to the cloud and require high-speed internet and specialised IT services, which Spirit can now nationally provide.

“This is a game-changer for Spirit, and through the acquisition of VPD Group, Spirit will build and strengthen its cloud, security, data and managed IT services capabilities whilst providing entry into expanded geographies in QLD and NSW for verticals such as mining, industrials and aged care,” Spirit Managing Director Sol Lukatsky said.

More than 85 per cent of VPD Group’s revenue is recurring, with a 98 per cent retention rate across the mining, aged care and industrial sectors.

Following the acquisition, Spirit will have a combined revenue run rate of between $70 million and $75 million for the 2021 financial year.

On the back of the news, Spirit’s shares are up 9.76 per cent and trading for 22.5 cents each at 12:46 pm AEST.

Related News