MNF to acquire Inabox wholesale business for AU$30m

MNF has announced that it will be buying Inabox's wholesale and enablement business with all of its employees for between AU$30.5 million and AU$33.5 million in cash, including Telcoinabox, iVox, Neural Networks, Mobile Service Solutions, and Symmetry Networks.

The businesses provide services to more than 500 wholesale customers across the nation, with MNF expecting it to generate revenue of around AU$55 million and earnings before interest, tax, depreciation, and amortisation (EBITDA) of AU$4.2 million.

"IAB performs a leading role in the Australian wholesale telecommunications market and brings considerable volume and scale to the MNF business," MNF CEO Rene Sugo said in a statement to the Australian Securities Exchange (ASX) on Monday morning.

"The company is also recognised as the leading provider of SaaS [software-as-a-service] enablement services to the industry, strongly complementing the MNF business."

Following the initial purchase price of AU$30.5 million, which will be funded through an extension of its existing revolving acquisition facility, MNF may pay a AU$3 million earn-out depending on the "successful commercialisation of recently procured enablement service offerings".

The earn-out payout would see MNF pay the wholesale telecommunications and cloud services provider AU$500,000 in March 2019; AU$1.65 million in June 2019; and AU$850,000 also in June 2019.

The acquisition is expected to complete by November 30, depending on Inabox shareholder approval.

Inabox, which will hold a shareholder meeting in November, said the proposed acquisition amounts to more than AU$0.80 per share.

"Directors unanimously recommend shareholders vote in favour of the transaction in the absence of a superior offer," Inabox said in its own ASX statement.

"The directors of the company believe the transaction will unlock significantly more value for shareholders than might otherwise be expected over the medium term by continuing to operate the company in its current form."

Inabox reported considering multiple acquisition offers, but said MNF's was superior due to being all-cash and having a higher degree of certainty.

"MNF Group is a natural buyer for our Indirect Business and I am confident that our staff, customers and suppliers will benefit from becoming part of a larger, highly successful company," Inabox CEO Damian Kay said.

Should the acquisition not proceed due to a competing offer or the company terminating the transaction, Inabox is liable to pay a break fee of AU$500,000 to MNF.

"If the transaction is approved by shareholders, the company intends to use the consideration received to repay all of its debts and other transaction expenses, retain an amount budgeted to operate, and cover the expenses of the listed entity while it pursues a back-door listing or similar transaction, and return all remaining cash to shareholders," Inabox added.

"On this basis, the board estimates that if the transaction proceeds as expected the net amount available for return to shareholders is likely to be AU$16 million to AU$17 million before the earn-out with up to a further AU$3 million assuming all of the earn-out conditions are satisfied."

The announcement follows cloud and networking company 5G Networks (5GN) acquiring the direct businesses of Inabox for AU$5.7 million in cash in August.

5GN, which provides access to third-party fibre services and its own wireless network offerings, alongside a cloud suite, said the acquisition will "fast track" its network rollout across Australia.

"The AU$5.7 million transaction is the purchase of IAB's Hostworks and Anittel subsidiaries. This will provide 5GN with one of Australia's largest and most experienced cloud providers, reflected through its technical resources and national reach and coverage," 5GN said.

"The acquisition is a significant step in expanding the geographical footprint of 5GN, which will now have offices Melbourne, Sydney, Brisbane, Adelaide, Perth, Hobart, regional NSW, and Townsville. Customer numbers will grow significantly with a number of ASX top 100 companies."

According to 5GN, its total annual revenue following the acquisition will be more than AU$55 million, with the company to be made up of over 200 staff members from both 5GN and Inabox.

Inabox had in June said it was considering selling off parts of its business after receiving "informal approaches" from interested parties.

In February last year, Inabox had raised AU$4 million via a private placement to help cover its AU$7 million acquisition of cloud services company Hostworks.

This was soon followed by its AU$1.5 million acquisition of Logic Communications in March last year, which it said would add more than AU$1 million in EBITDA in FY18.

On the telco side, Inabox launched a wholesale channel mobile product utilising Telstra's 4G and 3G networks back in August 2016, allowing subsidiary Anittel to provide their more than 440 indirect and direct retail service provider customers to offer a 4G-capable mobile solution to small and medium-sized enterprises.

In June 2016, Inabox sold off its Hosted Collaboration Services (HCS) business to Telstra for AU$4.5 million, which it said would enable the company to focus more on its "core offering to provide managed communications and IT solutions to small and medium businesses and consumer brands".

The HCS assets were acquired by Inabox upon its AU$9.88 million purchase of rival provider Anittel in 2014, along with a long-term exclusive agreement to supply the Tasmanian government with Cisco hosted collaboration services.

Inabox also secured a AU$3.6 million deal with Total Telecoms Group to handle 3,000 public switched telephone network (PSTN) services back in June 2015, and purchased Queensland VoIP and cloud services provider Neural Networks Data Services for AU$350,000 in July 2014.

MNF in August reported FY18 revenue up 15 percent to AU$220.7 million, though net profit was down 1.7 percent to AU$11.9 million while EBITDA rose by just 3 percent to AU$24.6 million following the relaunch of Pennytel and its MVNO deal with Telstra Wholesale .

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