Macquarie Telecom makes AU$17.9m bid to acquire Bulletproof

The Australian heavyweight has offered AU$17.9 million to acquire the remaining shares of Bulletproof and bolster its cloud offering.

Macquarie Telecom Group has made a AU$17.9 million bid to acquire the remaining shares in Australian-listed cloud services provider Bulletproof.

In a statement issued to the Australian Securities Exchange (ASX) Tuesday night, Macquarie, through its Cloud Services subsidiary, outlined its plan to obtain the remaining 83.89 percent of Bulletproof shares that it does not own, at a cost of AU$0.11 per share.

Macquarie currently claims an interest in just over 26 million shares, representing a 16.11 percent stake in Bulletproof by way of a deal with an associated entity of Bulletproof CEO and co-founder Anthony Woodward, the Woodward Family Company Pty Ltd.

Given Woodward's direct interest in the deal, Bulletproof has established an independent sub-committee of its board to work through the legalities of the deal.

The news follows both companies moving into a trading halt on Monday morning, with Bulletproof noting in a statement to shareholders it was in "current discussions concerning a potential acquisition of the company".

This followed Macquarie revealing it too was in discussions, however with the Australian heavyweight concerned with potentially acquiring another company.

Bulletproof, founded in 2000, listed on the ASX after performing a reverse takeover of Western Australian-based mining company Spencer Resources in early 2014.

The company is expected to be a "strategic fit" for Macquarie, with its CEO David Tudehope highlighting the integration of Bulletproof will allow customers to access a "full set of cloud options for collocation, private cloud, and public cloud".

With a focus on cloud, the government arm of Macquarie received accreditation from the Australian Signals Directorate (ASD) in September, allowing it to store highly classified government information up to "protected" level on its GovZone Secure Cloud platform.

Protected-level certification for cloud services is currently the highest security level approved by the ASD on its Certified Cloud Services List (CCSL), which also includes two other Australian players, Sliced Tech and Vault Systems, who scored protected-level certification in March.

Macquarie Telecom's managed cloud service was initially given the security tick by the ASD in May 2015, making it the first Australian cloud provider to be listed on the federal government's certified list.

Macquarie Government was also added to the New South Wales government's GovDC Marketplace in September, allowing it to provide cloud and cybersecurity solutions to state government agencies.

Macquarie as a result said it would be focusing on building government datacentre infrastructure over the coming year.

"We are investing even more heavily in building the infrastructure for government," Macquarie Government head of Business Development Angela Anderson said at the time.

Macquarie Telecom in August announced a jump in earnings before interest, tax, depreciation, and amortisation (EBITDA) by AU$8 million to AU$40.3 million -- up 25 percent -- for the FY17 fiscal year.

During the year, Macquarie doubled its capex to AU$38.5 million, with revenue climbing to AU$220 million thanks to its cloud and government units, which booked AU$82 million in revenue alone.

At the time, it flagged an expansion of its Canberra datacentre to keep up with demand from the high number of agencies on its books. It will also decide over the next six months whether to build or purchase additional datacentre capacity.

In the statement to shareholders Tuesday night, Tudehope highlighted the "deterioration" of earnings Bulletproof has experienced over the past 18 months.

For the 12 months ended June 30, 2017, Bulletproof reported an EBIT loss of AU$2.1 million. The EBIT loss saw the company marginally recovering from its AU$2.7 million first-half EBIT loss.

The company also reported an underlying net loss after tax of AU$0.2 million, which led to a statutory net loss after tax of AU$6.1 million once AU$6 million in one-off items, such as AU$1.3 million in restructuring costs -- which included culling its workforce by 30 people -- and goodwill impairments, were taken into account.

Revenue for the year improved by 4 percent over FY16, totalling AU$49.2 million, but recurring revenue growth of 6.5 percent year on year to AU$39.5 million was impacted by "significant churn" in its Public Cloud segment.

With the acquisition, Macquarie may also assume Bulletproof's New Zealand High Court battle, which began after Bulletproof announced its intention to acquire the business assets of New Zealand-based Cloud House for NZ$1 million upfront, with a further NZ$4.2 million in cash and scrip to be paid upon meeting performance targets by June 30, 2017.

The agreement was amended in June 2016 to allow earn-out payments to the founders in December 2016, June 2017, and December 2017. However, based on "business performance hurdles", including revenue and profit performance, the first payment was not made by Bulletproof.

As a result, Cloud House founders lodged a NZ$3.88 million claim against Bulletproof. According to Bulletproof, the claim alleges that Bulletproof's management and business decisions after the acquisition resulted in Cloud House not achieving the earn-out to which it claims to be entitled.

The claim also alleges that Cloud House was misled by Bulletproof on the company's capabilities, customer base, and access to managed services.

Bulletproof is disputing the allegations and lodged its defence in August 2017.

Lawsuit aside, Bulletproof's New Zealand business delivered NZ$3 million in revenue for the 2017 financial year.

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