Over the Wire (ASX:OTW) shares soar on $36 million acquisition

The Over the Wire Holdings Ltd (ASX: OTW) share price jumped nearly 8% today on the back of a strategic acquisition.

Over the Wire is a telecommunications, cloud and IT solutions provider that has a national network with points of presence in all major Australian capital cities and Auckland, New Zealand. 

The company offers an integrated suite of products and services to business customers including data networks and internet, voice, data centre co-location, cloud and managed services.

What’s the deal?

Today, Over the Wire announced it has entered into a binding agreement to acquire the Australian and New Zealand businesses of J2 Global Inc, a NASDAQ-listed digital media and cloud services company.

This will see Over the Wire acquire all of the shares in J2 Australia Cloud Connect Pty Ltd and Zintel Communications Limited – together, the acquired business.

The acquired business includes the brands of Zintel and Fonebox and is a leading platform provider of 13, 1300 and 1800 inbound telecommunication services. It has more than 9,000 business customers, ranging from small, independent businesses through to large, corporate enterprises. 

Why is Over the Wire making this acquisition?

Explaining the strategic rationale of the acquisition, Over the Wire included the following points:

  • The acquisition introduces new solution capability to Over the Wire in the areas of inbound telephony services, including call routing intelligence, data intelligence, call management and analytics reporting via a proprietary technology platform;
  • The acquired customer base offers cross-sell opportunities, particularly in the outbound voice and hosted telephony services; and
  • The acquisition is EBITDA and EPS accretive.

On the last point, the acquired business is expected to contribute approximately $19 million revenue and $6 million EBITDA on an annualised basis. This translates to an EBITDA margin of nearly 32%.

Management commentary

Commenting on the deal, Managing Director Michael Omeros said: “This is a highly strategic acquisition for Over the Wire, achieving our plan to acquire a high-quality inbound voice business. The Fonebox and Zintel brands have been leaders in inbound telecommunications in Australia and New Zealand for over a decade. We welcome such a talented and specialised team to the Over the Wire group.”

“This acquisition expedites our geographic expansion plans in New Zealand, as well as extending our inbound voice capability and gives us a stronger foundation for providing a broad range of voice services to our existing customers and the Australian and New Zealand business markets.”

What next?

Over the Wire will pay total consideration of $36 million, which will be fully funded from the company’s cash reserves and a debt facility with Westpac Banking Corp (ASX: WBC). The acquisition is expected to be completed on 31 August 2020. 

Following completion, Over the Wire is set to have more than 16,700 13 and 1300 numbers, 7,800 1800 numbers, and over 14,000 customers. 

Over the Wire shares closed at $4.08 today, taking the company’s market capitalisation to around $210 million. 

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Disclosure: At the time of publishing, the author of this article does not have a financial or commercial interest in any of the companies mentioned.

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