Arq Group finds AU$35m Enterprise Division buyer to help reduce debt

The company has sold its Enterprise Services Division, and its name, leaving only the SMB Division.

Arq Group, formerly Melbourne IT, has announced the sale of its Enterprise Services Division for a cost of AU$35 million, leaving the Australian Securities Exchange (ASX)-listed company with only its SMB Division and the need for a new name.

The buyer is an entity owned by Quadrant Private Equity and three members of the Enterprise Services Division management team, including its outgoing CEO Tristan Sternson.

Arq will lose its name in the process, selling the rights to the Arq brand, too. Shareholders will vote for another name at the closure of the deal.

Brett Fenton, currently leading the company's SMB arm, will assume the role of ARQ Group Interim CEO effective immediately.

Gross cash proceeds of the sale will be AU$29 million, as Arq needs to make a final payment of AU$6 million to the vendors of InfoReady Pty Limited, which it acquired in 2016.

At the time, the company sold its international domain name business to fund the InfoReady purchase.

Arq said the final net proceeds would be subject to adjustments for net debt items, working capital, and insurance cover. The company added that the net proceeds of the sale would be applied to reduce its debt.

The company has been searching for ways to reduce its debt, in September announcing a review by Macquarie Capital to "explore all avenues for shareholder value creation".

On Tuesday, Arq told shareholders the divestment would allow it to focus on "stringent cost management and value maximising options for the SMB Division". Arq said discussions are ongoing with "multiple interested buyers" for its SMB business.

"Decoupling Enterprise will allow for the team to focus on SMB, enabling it to deliver to its vision of being the most impactful digital marketing partner in Australia, unlocking the growth potential of local small and medium businesses," Arq Group chair Andrew Reitzer said.

The transaction is expected to close on 2 March 2020 and will not be subject to any conditions, Arq said.

ARQ GROUP AND THE RFS

Arq Group was approached by the Rural Fire Service (RFS) in 2017 for help with developing and updating the Fires Near Me mobile application that helps users stay up to date on bush fires within their area or areas that are on their watch list.  

"It's about putting real time information of the hands of people that need it and having alerts and things so you can change your behaviour so you don't get caught in the line of fire and watch out for your loved ones if you live far away," Arq Group's Daniel Johnson said, speaking with ZDNet about the project during Amazon Web Services (AWS) re:Invent.  

"It's a really powerful app."  

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Screenshots: Asha Barbaschow

Although the app has been live for over a year and was already used by many, the Fires Near Me app was downloaded nearly 750,000 times over the course of a 24-36 hour period spanning November 12 and 13 -- the days leading up to the NSW Premier declaring a state of emergency. 

"When the recent fires were raging, it was about 750,000 downloads in 24 to 36 hours and 12 million notifications [were sent] on the 'worst day'," Johnson explained. "The app stood up and handled it no problems." 

The app is hosted on AWS. Johnson said the number of downloads and total notifications that were pushed out wouldn't have been possible without the power of the cloud.

To support the app's development, Arq Group had a multi-functional delivery team of 50 or-so people on board, including iOS and Android engineers, UX/UI specialists, testers, and software engineers. 

"Rural Fire Service was very clear on what they wanted to do, which is great, they had a vision and a mission and they were going to get it," Johnson said. 

The app was replicated in South Australia, and Sternson is reported as saying the app was also up for sale amid the company-wide restructure.

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