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Venture Advisory Monthly Wrap - May 2019

Updated: Jun 13, 2019

Key takeaways from the Telecommunications & ICT, Media and Technology Sectors

May was another busy month for the telco sector with significant announcements on three major M&A deals in the market:

  • The ACCC opposed the proposed merger of Vodafone Hutchison Australia (VHA) and TPG Telecom. However, VHA and TPG remain committed to the proposed merger and filed a legal action in response to the ACCC decision

  • Vocus received a confidential, non-binding, indicative proposal from EQT Infrastructure to acquire Vocus for $5.25 per share in cash. However, Vocus announced the termination of discussions with EQT on 4 June

  • Superloop received an unsolicited, non-binding, conditional and initial indicative proposal from QIC Private Capital to acquire Superloop for $1.95 per share (initial proposal was $1.90 per share, representing a 29.7% premium on the closing price on 2 April). However, the Board and QIC had been unable to agree to a transaction

Furthermore, M&A activity continued to be strong in May with several deals announced:

  • Arq Group sold its TPP wholesale reseller business for $24.4m. This deal was completed by Venture Advisory

  • KKR completed the acquisition of all remaining shares in MYOB

  • The acquisition of Trade Me Group by Titan AcquisitonCo New Zealand was completed

  • IRESS acquired QuantHouse for a total purchase price up to €38.9m, representing less than 2x reported FY18 revenue of €21.2m and less than 10x EBITDA

  • Citadel Group acquired Noventus for $5.7m in cash, representing a multiple of 2.7x FY18 EBITDA of $2.1m

  • Hansen Technologies acquired Sigma Systems for $166.2m, representing an EV/EBITDA multiples of 8.3x CY18 normalised EBITDA

  • Spirit Telecom acquired Building Connect for $300,000 paid in scrip at $0.15 per share

Telecommunications sector highlights:

The five best and worst performers for May 2019 were as follows:

Source: Factset, as at 31 May 2019

5G Networks (23 May) announced an increase of its available debt facility with CBA to $7.2m. The increased facility provided 5GN with additional resources to pursue an accretive acquisition in data centre facilities, managed service providers and AWS partners and software development companies

Arq Group (20 May) announced the divestment of its TPP wholesale reseller business. Total transaction proceeds of $24.4m would be used to reduce debt, providing the company with balance sheet flexibility. The transaction was effected at an implied multiple of 4.2x FY18 EBITDA. The sale of TTP would accelerate the digital services growth strategy of the company

amaysim Australia (30 May) agreed to a revitalised wholesale network services agreement (NSA) with Optus. Both parties recognised the need to revitalise the NSA to better align the growth ambitions of each company. Under the revitalised NSA, which runs until 30 June 2022, amaysim would change the way it acquires data inclusions and network services from Optus. This would enable rapid product deployment, the development of innovative new features and services and a greater level of flexibility and competitiveness

Hutchison Telecommunications (Australia) (24 May) acknowledged ACCC’s decision to oppose the proposed merger between TPG Telecom and Vodafone Hutchison Australia. The company filed a statement of claim with the Federal Court to seek approval for the proposed merger

Macquarie Telecom (6 May) appointed Geoff Richardson as interim CFO. Geoff has over 20 years’ experience in finance and executive roles across various industries with most recent roles being CFO at SAI Global and Ardent Leisure Group

Megaport Limited (21 May) announced the sell down of 3.3m shares in the company (equivalent to 2.46% of the issued capital) held by Megaport Chairmen, Bevan Slattery. The sale was underwritten by UBS at a price of $5.11 per share and distributed to institutional investors. Bevan would use the proceeds to fund early stage development of two new technology ventures

Superloop (30 May) announced that the INDIGO subsea cable system is now ready to be deployed by consortium members. Superloop subsidiary SubPartners is a member of the consortium

Superloop (16 May) announced that the Board and QIC had been unable to agree to a transaction regarding to the unsolicited, non-binding, conditional and initial indicative proposal from QIC Private Capital to acquire Superloop. The parties had decided to discontinue the period of exclusivity to conduct due diligence. The unsolicited, non-binding, conditional and initial indicative proposal on 2 April from QIC Private Capital was to acquire Superloop for $1.90 per share (a 29.7% premium on the closing price of $1.465 per share on 2 April). Superloop later received a further revised indicative proposal on 26 April to acquire the company for $1.95 per share

Spark New Zealand (30 May) Board had determined that as at 30 May 2019 Ms Pip Greenwood was reclassified as an independent Director. Ms Greenwood joined the Board of Spark in April 2018

Spark New Zealand (13 May) announced the resignation of Alison Gerry as a Director. She would step down from the Spark Board with immediate effect. Alison has been a Director on the Spark Board since 2016 and was Chair of Spark’s audit and risk management committee

Spirit Telecom (31 May) announced that Shaw & Partners would underwrite 28.7m listed options currently on issue. The options had an exercise price of $0.197 each and expire on 31 July 2019. This unlocked $5.6m capital available to Spirit and the underwriting fee was 4% of the underwritten amount

Spirit Telecom (24 May) signed a $1.1m deal with the Victorian State Government to deliver super-fast internet, using 5G technology, to the regional town of Morwell

Spirit Telecom (9 May) announced the acquisition of Building Connect for $300,000 paid in scrip at $0.15 per share with 70% escrowed. The acquisition brings Spirit instant accretive expansion into Sydney as it extends the Sydney network across 31 buildings/business parks (particularly Western Sydney) servicing over 200 business customers. Building Connect provided an office, warehouse and team based in Sydney. Spirit would integrate sites from the LinkOne acquisition and Building Connect into one expanded Sydney network

Spirit Telecom (1 May) announced the completion of the acquisition of LinkOne Group. Geoff Neate (MD of Spirit Telecom) commented that the company would launch a sales and marketing campaign in Brisbane and revisit the sales opportunities that could not satisfy earlier this financial year

Telstra (29 May) announced that as a result of good progress on the T22 strategy, it expected to make a non-cash impairment and write-down of legacy IT assets by around $500m. In addition, Telstra increased guidance on its restructuring costs for FY19 by around $200m, as a result of bringing forward a consultation on proposed job reductions

TPG Telecom (24 May) acknowledged ACCC’s decision in relation to its opposition to the proposed merger of TPG and Vodafone Hutchison Australia. The company confirmed lodgement of Federal Court proceedings, seeking orders that the proposed merger between Vodafone Hutchinson Australia and TPG would not have the effect, or likely effect, of substantially lessening competition

Vocus Group (27 May) confirmed the reception of a confidential, non-binding, indicative proposal from EQT Infrastructure to acquire all of the shares in Vocus at a price of $5.25 per share in cash. The Board decided to grant non-exclusive due diligence access to EQT to enable EQT to potentially put a formal binding proposal to Vocus

Forward EV / EBITDA Multiples Chart

The forward EV / EBITDA multiples for leading telco stocks at the end of the month is as follows:

Source: Factset, as at 31 May 2019

Media sector highlights:

The five best and worst performers for May 2019 were as follows:

Source: Factset, as at 31 May 2019 Limited (1 May) appointed David Wiadrowski as a non-executive Director and chair of the audit committee. Mr Wiadrowski is an experienced non-executive Director with strong financial credentials. He was a partner at PwC for 25 years

Domain Holdings (31 May) announced the entry into binding documentation with its joint venture partner TW Australia Holdings for Domain to divest its 50% interest in Compare & Connect for $6m. Compare & Connect provides utility comparison and connection service. Following the divestment, Domain would have a marketing services agreement with Compare & Connect which included both guaranteed and referral fees

Macquarie Media Limited (6 May) amended its FY19 EBITDA guidance as trading conditions had fallen below expectations. The underlying EBITDA for FY19 were now expected to fall between $27m - $29m

News Corporation (10 May) released Q3 FY19 financial results with revenue of $2.46b (a 17% increase), net income of $23m and total segment EBITDA of $247m (up from $181m in the prior year). The increase of revenue reflected the consolidation of Foxtel and strength at the book publishing segment. EPS decreased to $0.02 from $1.94 in the previous year

oOh media Ltd (16 May) appointed Timothy Miles as an independent non-executive Director. Mr Miles is currently a non-executive Director of New Zealand listed Genesis, Nyriad, UDC finance and is Chair of the Gut Cancer Foundation

REA Group (10 May) announced the results for Q3 FY19, which included revenue growth of 13% to $667.8m and EBITDA growth from core operation of 15% to $404.7m. These results were driven by the strength of the Australian residential and developer business, and the inclusion of the home track business

Seven West Media (21 May) advised that it expected underlying EBIT for FY19 to be in the range of $210m - $220m, a decrease from $235.6m in the previous year. The company expected the FY19 net cost reduction to be at the top end of the $30m - $40m and net debt reduction by approximately $75m. Seven has grown revenue share in FY19 (including a 41.3% share of the metro FTA market and 42.5% share of BVOD market in April), however, this revised guidance reflected the soft conditions and the existing short market experienced across the advertising section and the economic uncertainty surrounding the Federal election

WPP AUNZ (27 May) appointed Jens Monsees as Chief Executive Officer and Managing Director effective October 2019. Mr Monsees was Corporate Vice President of BMW Group leading global digital strategy, corporate planning and product strategy

Forward EV / EBITDA Multiples Chart

The forward EV / EBITDA multiples for leading media stocks at the end of the month is as follows:

Source: Factset, as at 31 May 2019

Technology sector highlights:

The five best and worst performers for May 2019 were as follows:

Source: Factset, as at 31 May 2019

Afterpay Touch Group (3 May) signed a US$300m receivables funding facility with Citi to support the expansion of Afterpay’s US business. The US facility would operate as a warehouse funding facility with a term of 24 months. The new US facility complemented the existing facility and provided a strong corporate balance sheet and liquidity position. The transaction also geographically diversified the company’s debt funding sources and provided additional tenor to Afterpay debt maturity profile

Bravura Solutions (3 May) announced the successful completion of a $165m fully underwritten institutional placement of approximately 28.7m shares at the final issue price of $5.75 per new share, representing a 7.9% discount to the last close price of $6.24 on 1 May. Bravura intended to use the proceeds to fund growth-related initiatives including acquisitions and product functionality enhancements that support geographic expansion, development of Sonata and the proposed acquisition of GBST

Citadel Group Limited (27 May) announced the acquisition of Noventus, a private multi-disciplinary company specialising in serving the defence, government, telecommunication and transportation sectors. Noventus would be acquired for $5.7m in cash with 50% of the consideration to be paid on completion and the remaining to be paid in approximately three months. This represented an acquisition multiple of 2.7x FY18 EBITDA of $2.1m. The acquisition would be immediately EPS accretive. This acquisition increased the scale of Citadel’s defence and national security offering and the company expected revenue synergies from expanded system integration and networking capabilities

Citadel Group Limited (17 May) provided a trading update that the company expected revenue for the full year to be in the range of $97m - $104m, gross profit margins to be reduced to approximately 46%, and EBITDA to be in the range of $22m - $24m. The expected changed was driven by customer-controlled project extensions (delay of commencement until H1 FY20) and the anticipated increase in customer spend did not occur

Citadel Group Limited (16 May) appointed Sam Weiss as an independent non-executive Director. Mr Weiss currently serves as Chairman of Altium and 3P Learning, having overseen these companies as they have successfully expanded operations internationally

Crowd Media (15 May) announced that it had executed new third-party agreements for digital marketing services, including digital influencer marketing for multiple international brands. The new brands included PJ Masks, Expedia, N26 and Pasta Garofalo. The company would continue to work through a strategic review of the business and identified a further $1.5m in annualised operational and corporate cost saving that was expected to be executed before the end of FY19

GBST Holdings (3 May) provided an update in relation to Bravura indicative proposal, referred to the company’s announcement as at 12 April 2019. The GBST Board was concerned with issues on value and certainty of the indicative proposal, including Bravura’s request to conduct due diligence to its satisfaction, particularly because it is a direct competitor of GBST. GBST has engaged Bravura and its advisers to further understand its position

Gentraxk Group (24 May) released half-year financial result which reported an increase in revenue of 5% to $54.4m, increase in recurring revenue of 26% to $37.7m and a fall in EBITDA of 19% to $12.8m over the same period last year. This was driven by the shift to SaaS sales, some deferred customer projects and increased investment in productised SaaS solutions. The company also reported an adjusted NPAT of $4.6m and declared a $0.05 interim dividend per share

Hansen Technologies (1 May) announced the signing of a definitive agreement for the acquisition of Sigma Systems, a leading global provider of catalog-driven software products for telecommunications, media and high-tech companies. Sigma System was acquired for an EV of $166.2m (representing an EV/EBITDA multiples of 8.3x CY18 normalised EBITDA) and the acquisition was funded by a new bank facility of $225m. Sigma System has CY18 revenue of $75.5m and CY normalised EBITDA of $19.4m. The business was viewed as a high-quality that significantly expanded Hansen’s scale and scope in the telecommunication sector. Hansen also recognised cross-sell opportunities into Hansen’s large utilities customer based. This acquisition was expected to be EPS accretive in FY20

IRESS (31 May) announced the acquisition of QuantHouse, a leading international provider of market data and trading infrastructure, for a total purchase price up to €38.9m, subject to a material earnout. The purchase price represented less than 2x reported FY18 revenue of €21.2m and the EBITDA multiple would be substantially less than 10x. The acquisition would be debt funded through existing facilities. The acquisition expanded IRESS’s offering to clients globally, further strengthened IRESS’s international market data business and provided opportunities to achieve cost synergies and scale

Link Administration Holdings (31 May) released a trading and earnings update that the FY19 operative EBITDA was expected to be approximately $350 - $360m and operating NPATA to be approximately $195 - $205m

Livehire (8 May) announced that the company had surpassed 1m talent community connections (TCCs), with more than 200,000 TCCs being added in the last 4 months. Livehire is now used by organisations in 14 of the 18 Australian industries, which collectively represent 85% of the working population

MYOB Group (8 May) announced the scheme of arrangement had been completed. This was referred to the arrangement between MYOB and its shareholders for KKR to acquire all of the shares in MYOB that it does not already own

OFX Group (21 May) released the full year results for the period ending 31 March 2019. It reported a turnover of $23.7b (up 11.9% on FY18) which was driven by an increase of the number of transactions by 8.8% to 1.05m, increase in average transaction value, active clients and transaction per active client. The underlying EBITDA was up 8.1% to $32.2m and net operating income was up 8% to $118.7m at a stable margins. However, there was a decrease in statutory NPAT of 5.8% to $17.6m due to previously disclosed corporate action cost

Pushpay Holdings (8 May) released its full-year financial report for the year ended 31 March 2019, showing that revenue from ordinary activities was up 40% to US$98m, EBITDAF increased 108% to US$1.6m, NPAT was up 181% to US$18.8m. This was driven by 18.9m transactions in 19 countries and US$192 average transaction value over the year

Pushpay Holdings (8 May) announced that Chris Heaslip had resigned from his position as CEO but remains a Director of the company. The Board had appointed Bruce Gordon (previously Chairman of the Board) as Pushpay’s incoming CRO and Executive Director, with effect from 1 June 2019. Graham Shaw (previously independent Director) had assumed the role of Chairman of the Board

Trade Me Group (8 May) announced that the acquisition of Trade Me Group by Titan AcquisitionCo New Zealand Ltd was completed

Technology One (21 May) released the financials for the half-year ended 31 March 2019 that reported a 130% increase of net profit before tax ($24.5m) driven by the 45% growth of SaaS annual contract value to $85.8m. The revenue was up 5%, expenses was down by 7% and R&D expenditure was up 7% (representing 22% of revenue). The company paid out a dividend of $0.0315 per share

Xero (16 May) released the full-year financials for the year ended 31 March 2019 that reported a strong growth in operating revenue and annualised monthly recurring revenue of 36% and 32% respectively. There were increases of gross margin and EBITDA margin due to improving efficiencies in sales, marketing and product design and development costs. The company reported a net loss of $27.1m because of the impairments in the first half of the year and an EBITDA of $73.2m (increased from $48.2m in FY18). Xero also saw a 31% growth in total subscribers to 1.818m driven by the additions of international net subscribers (total of 239,000), especially UK additions

ZipMoney Limited (21 May) announced a partnership with Kmart Australia to offer Zip interest free payments to Kmart customers. The relationship with Kmart was in line with Zip’s strategic vision and expanded the Zip’s customer base

Forward EV / EBITDA Multiples Chart

The forward EV / EBITDA multiples for leading technology stocks at the end of the month is as follows:

Source: Factset, as at 31 May 2019

Reference stocks

Our reference portfolio is as follows:

Telecom Stocks:

5G Networks (5GN-AU), Arq Group (ARQ-AU), amaysim Australia Ltd. (AYS-AU), Chorus Limited (CNU-NZ), DWS Group (DWS-AU), Hutchison Australia (HTA-AU), Inabox Group Ltd. (IAB-AU), Macquarie Telecom Group Limited (MAQ-AU), Megaport (MP1-AU), MNF Group Limited (MNF-AU), Netcomm Wireless (NTC-AU), Nextdc Limited (NXT-AU), Over the Wire (OTW-AU), Singapore Telecommunications Limited (Z74-SG), Spark New Zealand Limited (SPK-NZ), SpeedCast International Ltd (SDA-AU), Spirit Telecom (ST1-AU), Superloop Ltd. (SLC-AU), Telstra Corporation Limited (TLS-AU), TPG Telecom Limited (TPM-AU), Vita (VTG-AU), Vocus Group Limited (VOC-AU)

Media Stocks:

Carsales.Com Limited (CAR-AU), Domain Holdings Australia Ltd. (DHG-AU), Asia Pacific Digital Limited (AJD-AU), Event Hospitality & Entertainment Ltd. (EVT-AU), Fairfax Media Limited (FXJ-AU), GTN Group (GTN-AU), HT&E Ltd (HT1-AU), iCar Asia Ltd. (ICQ-AU), Macquarie Media Limited (MRN-AU), Nine Entertainment Co. Holdings Pty Ltd. (NEC-AU), News Corporation Shs B Chess Depository Interests repr 1 Sh (NWS-AU), oOh media Ltd (OML-AU), Pacific Star Network Limited (PNW-AU), Prime Media Group Limited (PRT-AU), QMS Media (QMS-AU), REA Group Ltd (REA-AU), Seek Limited (SEK-AU), SKY Network Television Limited (SKT-AU), Seven West Media Limited (SWM-AU), Southern Cross Media Group Limited (SXL-AU), Trade Me Group Limited (TME-NZ), Village Roadshow Limited (VRL-AU), WPP AUNZ Limited (WPP-AU)

Tech Stocks:

3P Learning Ltd. (3PL-AU), Altium (ALU-AU), Afterpay Touch Group Ltd. (APT-AU), Appen Ltd. (APX-AU), Big Un Limited (BIG-AU), Bravura Solutions Limited (BVS-AU), Catapult Group International Ltd. (CAT-AU), Citadel Group Ltd. (CGL-AU), Class Ltd. (CL1-AU), Crowd Mobile Limited (CM8-AU), Computershare Limited (CPU-AU), Data#3 Limited. (DTL-AU), ELMO Software Ltd. (ELO-AU), GBST Holdings (GBT-AU), GetSwift Ltd. (GSW-AU), Gentrack Group Ltd (GTK-NZ), Hansen Technologies Limited (HSN-AU), Impelus Ltd (IMS-AU), Infomedia Ltd (IFM-AU), IRESS Limited (IRE-AU), Integrated Research Limited (IRI-AU), iSentia Group Limited (ISD-AU), Ltd. (KGN-AU), Link Administration Holdings Ltd. (LNK-AU), MYOB Group Ltd. (MYO-AU), Nearmap Ltd. (NEA-AU), OFX Group Ltd. (OFX-AU), Pro Medicus Limited (PME-AU), Pushpay Holdings Ltd (PPH-NZ), Reckon Limited (RKN-AU), Retech Technology (Technology One Limited (TNE-AU), Webjet Limited (WEB-AU), Wisetech Global Ltd. (WTC-AU), Xero Limited (XRO-NZ), Zip Co Ltd. (ZML-AU)

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