Vocus sells IT services business

L7 has been sold off to Cirrus Networks for AU$500,000 as Vocus refocuses on its core fibre business and recent mergers and acquisitions.

Vocus Communications has sold its non-core IT services business to Cirrus Networks in a deal worth AU$500,000.

The IT services business, known as Amcom L7 Solutions, was acquired by Vocus during its AU$1.2 billion takeover of Amcom in June.

L7 generated AU$28 million in revenue for Amcom during FY15, according to Vocus' statement [PDF] to the Australian Securities Exchange (ASX), and has so far generated unaudited revenue of AU$6.3 million for Q1 FY16, said Cirrus [PDF].

According to Cirrus, the acquisition will help it expand into Western Australia, along with other states. The business also has an established customer base that Cirrus can tap into.

"This is a key strategic acquisition for Cirrus, enabling us to grow our capability sets in both a cost-effective and efficient manner. L7 has a strong brand and blue chip client base that is complementary to our own," Cirrus CEO Frank Richmond said.

"We are confident of driving further growth as we integrate the businesses and implement an immediate return to the service levels and technical expertise L7 customers have come to expect."

L7 was acquired by Amcom in 2011 for AU$15 million.

The sale of L7 signals Vocus' intention to refocus on its core fibre business; Vocus has already connected 1,300 buildings to its 700km of fibre in Australia, as well as 4,200km of fibre in New Zealand, and last month also signed a AU$170 million 50-50 joint-venture deal with Nextgen Networks to construct the Australian Singapore Cable.

The 4,600km subsea cable will connect Australia to Singapore and Indonesia, with Vocus claiming that it would be the first 100-gigabit-per-second connection between Australia and Southeast Asia.

Vocus is also planning to merge with M2 Group in a bid to form the third-largest telco in New Zealand and the fourth-largest in Australia, worth more than AU$3 billion.

The Australian Competition and Consumer Commission (ACCC) last month announced that it would not oppose the M2-Vocus merger, with New Zealand's Commerce Commission likewise approving the merger earlier on Friday.

The companies' Merger Implementation Agreement, released in September, gained the support of both boards, with the companies forecasting combined revenues of AU$1.8 billion for FY16, as well as earnings before interest, tax, depreciation, and amortisation (EBITDA) of AU$370 million.

Occurring via an M2 scheme of arrangement, the merger would be scrip based, wherein M2 shareholders will be given 1.625 Vocus shares per M2 share. M2 shareholders have yet to approve the deal, with a vote set to take place in early 2016.

According to the companies, M2 and Vocus will fit together well, as they have similar values and objectives.

"M2 and Vocus are an excellent fit, being highly complementary and culturally aligned," said Craig Farrow, chairman of M2.

"Both have successful track records of creating substantial value for shareholders and, together, we will retain this focus. Our ability as a merged company to capture future growth opportunities in Australia and New Zealand will be significantly enhanced."

The combined entity would provide retail internet, retail electricity and gas, corporate and wholesale internet and VoIP, datacentre and cloud services, domestic and international bandwidth, and dark fibre.

M2, which operates telco providers Dodo, iPrimus, and Commander, as well as energy provider Engin, in February recorded an 8 percent rise in revenue for the six months to December 2014 to AU$546.2 million, EBITDA up 14 percent to AU$86.1 million, and net profit after tax up 25 percent, to AU$38.5 million.

The L7 acquisition is due to complete next week.