Deal for reinforcing network footprint: Vocus has announced for the acquisition of Nextgen Networks and North-West Cable System development Project (NWCS) for a total upfront consideration of $ 807 million in addition to the acquisition of the Australia-Singapore Cable development project (ACS) for a deferred consideration. The acquisition of Nextgen Networks utilises the transaction multiple of approximately 10.7 times FY 2016 EV/EBITDA on a normalised EBITDA basis (before synergies) and 7.3 times including estimated synergies. The acquisition of the domestic backhaul fibre network of Nextgen significantly enhances the fibre infrastructure footprint in Australia of Vocus. The proposed deal excludes Nextgen’s data centre business, Metronode.
Transaction details (Source: Company Reports)
Strategic fit and funding: This is a strong strategic fit with expected costs synergies of $ 30 million per annum. The acquisition is expected to be high single digit EPS accretive on a pro forma basis for FY 2017, including synergies. Significant near-term upside potential is expected from the NWCS development project. The acquisition will be funded by a fully underwritten, accelerated, renounceable entitlement offer with retail rights trading of approximately $ 452 million and a fully underwritten institutional placement of up to approximately $ 200 million, with the balance being funded through existing syndicated debt facilities.
The above acquisition is expected to be high single digit EPS accretive on a pro forma FY 2017 basis and following the transaction, Vocus will keep its strong balance sheet flexibility with net leverage ratio of less than 2.3 times FY 2016 pro forma EBITDA. The acquisition is expected to be highly complementary to the existing infrastructure and business and estimated cost synergies of $ 30 million per annum are expected to be fully realised over three years with one-time costs for implementation of savings estimated at $ 6 million. These cost synergies include network synergies achieved through economies of scale and third-party access tail spend. Capital expenditure synergies are estimated at $ 8 million annually.
Nextgen is one of the largest national fibre backhaul networks in Australia, covering approximately 17,000 km that links capital cities to regional and remote areas. It provides services such as transmission links, switched data services and high-speed internet to corporate, wholesale and business customers. Nextgen generated $ 193 million in revenue and $ 62 million in normalised cash EBITDA for the 12 months ended December 31, 2015. NWCS is a development stage project to build a 2000 km submarine cable from Darwin to Port Holland to service the mining and offshore oil and gas sector in Western Australia. Commercial operations are expected to commence in late 2016, supported by customers on a long-term basis.
Vocus has surged 18.74% in the last six months (as at July 05, 2016) and is trading at a very high P/E ratio of about 219.
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