AdEPT Telecom plc Northland Capital’s Comments

AdEPT Telecom plc (LON:ADT) has announced the acquisition of Atomwide Limited, established in 1987 and a specialist in the provision of IT services to the UK education sector, Local Authorities and Regional Broadband Consortia, with over 2m users in 4,000 schools. Atomwide is key technology partner to London Grid for Learning, supplying IT services to c. 3,000 schools in London, backed by Atomwide’s IT centre in Orpington, Kent.

 

AdEPT will pay an initial consideration of £12.0m plus surplus cash at Atomwide at 31st July 2017, with an earnout payment, contingent on performance in the first 12 months, of up to £8.0m. The acquisition is funded through the issue of £7.3m of convertible debt by British Growth Fund, convertible into ordinary 10p shares at 393p, and by £4.7m of the existing Barclays and Royal Bank of Scotland joint facility, retaining headroom for further acquisitive growth. Atomwide’s management team will remain in place.

 

For the year to 31 March 2017 Atomwide reported revenue of £7.5m, operating profit of £1.9m and PBT of £1.9m. AdEPT expects the acquisition to increase its revenue run rate by approximately 19%.

 

For AdEPT the scale and quality of this acquisition is transformational. Atomwide is highly profitable. The acquisition is complementary to AdEPT’s telecommunications and IT product set, and its regional focus. Our rating remains Buy; we shall review our outlook accordingly.

 

AdEPT Telecom plc is an independent communications and IT services provider to the B2B market and public sector. AdEPT operates an efficient, award winning, services platform and has some of the highest operating margins in the sector. The Company active in acquisitions and has an experienced integration team. It has particular strength in providing dedicated service management for multi-site businesses and public sector organisations.

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