Melbourne IT to purchase Netregistry in AU$50.4m deal

The two dominant Australian domain name companies look to merge to maintain competitiveness against cheaper, foreign-based competition.
Written by Chris Duckett, Contributor

Melbourne IT announced today that it has entered into an agreement with competitor Netregistry to purchase the company in a deal worth AU$50.4 million.

The payment for the purchase will be made in two parts, with 4.99 percent to 9.99 percent of outstanding Melbourne IT shares offered to Netregistry shareholders, and the remainder paid in cash. This will see Melbourne IT part with 4.3 million to 9.3 million shares and between AU$38 million to AU$45 million in cash, subject to regulatory approval.

"The proposed transaction will bring together two of Australia's leading web services businesses, generating significant benefits for customers, employees, and shareholders of both companies," said acting CEO of Melbourne IT Peter Findlay.

As part of the transaction, Larry Bloch, founder and CEO of Netregistry, will join Melbourne IT's board.

"This transaction validates the tremendous success the Netregistry team have had since 1997 in building a leading web services business. The merged entity will benefit from the leading products, management team, and efficiencies of both companies," Bloch said.

Melbourne IT said that it will remain cashflow positive despite the deal, with the acquisition to be funded via a mix of cash on hand, scrip consideration, a new AU$20 million line of credit, and AU$15 million leaving escrow after the sale of Melbourne IT's digital brand services unit to CSC for AU$152.5 million in March 2013.

Netregistry currently has annual revenue in excess of AU$30 million, and is expected to contribute at least AU$6 million of EBITDA to Melbourne IT's bottom line.

The merged group is expected to save AU$5 million through consolidation of platforms, products, Sydney offices, and infrastructure. It is expected that key Netregistry management personnel and staff members will be retained.

The transaction is expected to close before the mid point of this year.

The announcement of the deal arrived as part of Melbourne IT's full-year results, which saw the company revenue decrease by 5 percent to AU$103.4 million, with EBITDA falling by 43 percent to AU$5.8 million.

Melbourne IT said the results reflect a year of transition that saw the selling of its digital brand services unit, as well as the sale of its For The Record business for AU$6.3 million.

Given that AU$65.9 million has been returned to shareholders since August, the company said it would not be issuing a dividend.

Despite the Netregistry purchase, Melbourne IT said that it will continue to look for other acquisitions throughout the year.

With Netregistry in the bag, and a number of generic level top-level domains to appear throughout the next 12 months, including .web, .shop, .site, .med, and .melbourne, the company said it expects to refocus on SMB solutions.

Melbourne IT is forecasting a 2014 EBITDA in the range of AU$10 to AU$12 million, barring any further acquisitions taking place.

Shares in Melbourne IT were up 7.5 percent to AU$1.36 at the time of writing.

Incoming CEO and managing director Martin Mercer is expected to commence his new role in April. Mercer was previously the managing director of Optus' fixed division, and was appointed by the Melbourne IT board after previous CEO Theo Hnarakis was asked to step down.

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