Melbourne-based telco and managed IT services group Spirit Technology Solutions (ASX: ST1) has ramped up its cyber security offering through the $34.6 million acquisition of InfoTrust, a company that is expected to turbo-charge the earnings of one of its more profitable divisions.
Spirit is paying $14 million in cash up front for InfoTrust and $14 million in Spirit shares at 4.6c each, with a further $6.6 million in cash to be paid to InfoTrust shareholders in three tranches over 18 months after the deal is settled.
The announcement has been made in tandem with a trading update that reveals a weaker-than-expected performance by Spirit in the first half of FY24.
InfoTrust, a Sydney-based cyber security technology company led by co-founder Simon McKay, is described as a fast-growing business with a solid client base of government and corporate clients.
The company, which was established in 2014 and also has offices in Melbourne, Brisbane and Manila, has achieved a compound annual revenue growth rate of 39 per cent.
InfoTrust is on track to deliver unaudited EBITDA of $4.4 million in FY24, which compares with Spirit’s underlying EBITDA of $5.15 million posted in FY23.
Spirit is expecting the acquisition to achieve synergies of more than $1.4 million in FY25 through the integration of InfoTrust with Spirit’s existing cyber security division.
InfoTrust’s CEO McKay is described by Spirit as a 'well-regarded cyber security market expert' with more than 10 years’ experience in the sector. This includes a stint with global software group Symantec, which is now known as Gen Digital Inc.
McKay and fellow InfoTrust co-founder Dane Meah will join Spirit’s board following the acquisition.
Spirit’s CEO Julian Challingsworth says the acquisition expands the company’s presence in the cyber security market and strengthens the company’s position in the major markets of Sydney and Melbourne.
“Increasing both our cyber security and geographic spread was a logical next step for Spirit and InfoTrust provides us with a highly complementary product and services suite to our existing offering,” says Challingsworth.
“The deal gives us ownership of a leading Australian cyber-security firm, a company that has strong sales growth and profitability, a well-regarded CEO and a diverse suite of well-established and loyal clients.
“It delivers on our strategy of growth via acquisition and our overall goal of becoming one of Australia’s leading providers of modern and secure digital workplaces.”
Spirit is funding the cash component of the acquisition via a $16 million share placement to 263 Finance Pty Ltd, a significant shareholder of the company and an associate of non-executive director Shan Kanji.
The placement is priced at 5c per share and comprises 320 million Spirit shares. This compares with the 4.6c per Spirit share offered to InfoTrust shareholders as part of the acquisition, which comprises 304.3 million shares.
The shares being issued to InfoTrust are subject to shareholder approval which will be sought at an extraordinary general meeting scheduled for March or April.
Meanwhile, Spirit says a fall in business confidence among its SME clients led to softer trading conditions in the first half of FY24.
The company has reported a statutory loss of $5.2 million for the period, down from a $7.79 million loss a year earlier, despite lower preliminary unaudited group revenue which fell to $57.03 million from $67.29 million previously.
Preliminary unaudited group underlying EBITDA for the first half is $160,000, down from $3.98 million.
The cyber security division contributed underlying EBITDA of $621,000 during the period, up from $259,000 previously.
This was offset by an “extremely disappointing” underlying EBITDA loss of $2.46 million, up from a $1.28 million loss a year earlier.
Spirit Technology Solutions’ shares were trading almost 12 per cent higher at 6.6c at 11.55am (AEDT).
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