BigAir: Acquisition of Intelligent IP

BigAir has just announced another acquisition, which is now the largest the firm has made.  Intelligent IP is a Unified Comms and Managed Services provider which also operates a radio network across regional Western Australia.  After earn-in, BGL will pay up to $20m over the next 2 years.  The upfront purchase will be funded by a debt facility (prior to this acquisition BGL is debt free) with the earn-in payments made out of existing cashflow.  Amcom made a similar acquisition right before I began covering them.

 

Management has also confirmed that the dividend policy remains the same which indicates to me that another 1c dividend will be paid later this calendar year.  BGL are anticipating an EBITDA contribution from Intelligent IP in the order of $3m pa post integration (which I take to mean end of FY15).

 

Based on 20% EBITDA growth of the core business, this would be around $17.4m by FY15, with an additional $3m from Intelligent IP adds to $20.4m EBITDA, and at 42% NPAT/EBITDA ratio implies a NPAT for FY15 of around $8.5m.  At 20 times earnings this equates to a market cap of $171m and share price of around $1 if you account for some dilution in the Intelligent IP acquisition.  I believe 20x to be not unreasonable for a firm with BGL’s growth prospects.  P/E is currently 17.