When I wrote an analysis of BigAir as part of my MBA, I figured that the Intelligent IP acquisition would keep them busy for the time being and future acquisitions wouldn’t be as large. So imagine my surprise when just before Christmas, management announced the acquisition of Anittel’s (AYG) telecommunications business for $6.5M. This is expected to add $12M of revenue and $2M of EBITDA. This will increase the size of the business by a third, albeit with a small increase to EBITDA due to lower margins of Annitel’s telco business. There hasn’t been a huge amount of detail on the acquisition, and we’ll have to see how things pan out after a full year’s integration (FY15), but here are some thoughts:
- After having no debt (I’m assuming this will be 100%debt-funded) BigAir will have $13.5m of debt which is a big change to balance sheet.
- Anittel’s business is not in great shape. Their market cap is only $10M, and the investors section of the website hasn’t been updated since October 2013. If you look at their FY13 report, the Telco business is doing pretty well, growing 18% albeit on low margins, compared to the products part of the business which continues to shrink. The company’s FY13 presentation lacks hard numbers in terms of outlook, and does not inspire confidence. They are transitioning to a cloud/managed services model which is the future of ICT, but they need to continue investing, and may not end up getting it done.
- Anittel have a lot of regional customers and regional offices so it’s likely BigAir can evaluate a few towns like Bathurst and Orange, see whether it’s cheaper to keep paying Telstra for tails or build a WiMax POP in the town, and optimise their telco business accordingly.
- BigAir probably got a good deal on this. The company was desperate for cash and have offloaded the best part of their business – Remember BigAir have a significant play in regional accommodation facilities and mining camps so there is additional chunks of revenue to win there.
I’m going to suspend judgement of the results until FY15 figures come out, BigAir’s track record of absorbing acquisitions is pretty good although there’s every possibility they will choke on these two. Still holding and still positive on the future of the company, we are probably sitting at an inflection point in terms of growth and changes to the balance sheet but I wouldn’t be that surprised to see them as a $200M company by the end of FY15. Share price would be $1.17, a 45% premium on today’s close of 80 cents.