CentralNic Group (LON:CNIC) has announced this morning the acquisition of TPP Wholesale, the leading Australian and New Zealand domain name and hosting reseller business for a consideration of $24m AUD, subject to financing. This acquisition is a good example of CNIC’s strategy to acquire high recurring revenue businesses, with potential synergies that exist in new markets. We leave forecasts unchanged for now, preferring to wait until the financing condition is satisfied, but management have stated that they believe this transaction will be immediately earnings accretive for 2019E with double digit earnings accretion in 2020E. This is the group’s third acquisition in 12 months as they continue to execute their consolidation strategy.
Acquisition: The acquired business, TPP Wholesale, is a carve out of certain assets from ARQ Group Ltd. a business listed on the Australian Securities Exchange. TPP Wholesale is a leading domain name and hosting reseller platform business with around 14,000 reseller customers and 840,000 domains under management including 19% of all ‘.com.au’ registrations. Following this acquisition CNIC will also be a reseller of Amazon Web Services and Microsoft Office 365 for the first time, two of the fastest growing products in the online presence vertical. While separate financial information has never been reported by the acquired business, the company has estimated historic revenue and EBITDA for TPP Wholesale in 2018A of $17.0m AUD and $3.9m AUD respectively. The total consideration payable for the business is $24m AUD to be paid in cash and by assuming $1.6m of liabilities from ARQ at completion. The acquisition is subject to CNIC securing additional debt facilities which will both allow the completion of this transaction and provide further resources to continue to execute the acquisition strategy. This is the group’s third acquisition in 12 months as they continue to execute their consolidation strategy, they have also confirmed that the integration of Key-Drive, acquired in August 2018, continues to progress in line with scheduled milestones.
Forecasts: We leave forecasts unchanged for now, preferring to wait until the group has secured the necessary debt facilities, which we expect to be secured by the end of June, before updating for the impact of the acquisition. Management have stated that they expect this transaction to be immediately earnings enhancing for 2019E, with double digit earnings accretion for 2020E. They have also estimated a total of $1.8m AUD of integration costs, $0.7m of which will fall into 2019E.
Valuation: At the current share price, the group trades on a 2019E EV/EBITDA of 6.6x and a P/E of 13.7x. We believe this valuation is compelling given the track record of the business, the quality of the earnings, cash generation and continued execution of its stated strategy..
