REG-Alternative Networks Acquisition and New Contract
Released: 02/11/2009
com:20091102:RnsB7280B
.
RNS Number : 7280B
Alternative Networks plc
02 November 2009
ALTERNATIVE NETWORKS PLC
("ALTERNATIVE NETWORKS" or "THE COMPANY")
ACQUISITION AND NEW CONTRACT
Alternative Networks, the business communications service provider, today
announces the acquisition of Aurora Kendrick James Group ("AKJ"), a provider of
billing and customer service software. Alternative Networks also announces a new
contract with a major network operator, where its fulfilment will be materially
assisted by this acquisition.
SUMMARY
* Acquisition of AKJ for a maximum consideration of £5.5m (initially
£3.75m cash and £800,000 in shares, with up to £750,000 cash and £200,000 in
shares payable in 12 months).
* The acquisition is expected to be moderately earnings enhancing for
the current financial year.
* AKJ provides billing services to over 50 established telecoms and IT
service providers in the UK.
* Alternative Networks has used AKJ's software for almost 10 years and
has invested considerable resource in applying it to provide customers with a
simple and efficient mechanism to access and control the billing and usage of
their communications equipment.
* Bringing the software in house will protect Alternative Networks'
intellectual property and guarantees exclusivity on key elements of the software
that are important for customer attraction and retention.
* The acquisition will also accelerate the development of Alternative
Networks' customer service portal, enhancing the existing service offering and
creating opportunities for new revenue streams by working with third party
telecoms and IT services providers.
* AKJ will help in the management of a new contract to provide billing
and customer services for a major network operator. The contract is for 3 years
and is expected to generate approximately £1 million in fees in the first year.
James Murray, Chief Executive of Alternative Networks, commented:
"Acquiring the exclusive right to AKJ's software will accelerate our development
and enhance our broader service offering. It represents a sensible use of cash,
increases our commercial opportunities and provides a sound strategic platform
from which to gain an increasing share of the market, both organically and
through further acquisitions. Specifically, exclusive access to the software
will facilitate the efficient integration of future acquisitions."
Acquisition
The Company today announces the acquisition of the Aurora Kendrick James Group
[Limited] for a maximum consideration of £5.5 million (the "Acquisition"). The
consideration is to be satisfied by £3.75 million in cash and £800,000 through
the issue of 707,076 ordinary shares (the "Initial Consideration Shares"), and a
deferred consideration of £750,000 cash and £200,000 cash or shares at the
Company's choice, depending on the performance of AKJ over the 12 month period
to 31 October 2010.
The acquisition is expected to be moderately earnings enhancing for the group in
the year ended 30 September 2010.
All new ordinary shares issued as consideration will be credited as fully paid
and will rank pari passu with the Company's existing ordinary shares. It is
expected that Admission of the Initial Consideration Shares will become
effective on Friday 6 November. The Initial Consideration Shares are subject to
lock-in provisions for a period of two years from completion of the
Acquisition.
AKJ is a leading provider of billing, customer care and telecom estate
management (TEM) software to over 50 of the UK's larger telecoms and IT service
providers and resellers including AN. The business also provides a range of
outsourced billing services and acts as an enabler for new market entrants that
wish to expand their services to include legacy and next generation telephony
and IP based services.
AN has licensed AKJ's software for nearly 10 years for its own use, and has
spent over £0.35m with AKJ in the last two years on support and bespoke
development of the software which also enables AN to provide SME and corporate
customers with full control of their billing costs, usage and estates via
'Clarity', (AN's existing customer billing and management portal).
Most recently, AKJ has supported AN to enhance 'Clarity' to include a web based
tool to enable users to manage Personal Billing on their mobile devices and for
businesses to recharge personal use by employees, and track these expenses for
VAT and tax compliance purposes.
Prior to this acquisition, the exclusive licence which AN held to the 'Clarity'
software was set to expire next year in 2010.
Strategy
The rationale behind the acquisition is threefold:
* Accelerate the development of its market leading customer service portal-in
recent years, AN has made considerable headway in developing its customer
service portal, as is evidenced by the contract win announced today. AN plans to
further develop its customer portal to add significant value to business
customers by offering access to a complete range of telecoms cost, usage and
estate management tools, which provide customers with complete visibility and
control across theirfixed,mobile, data and next generation networks.AKJ has
already developed a number of innovative services (including technologies that
fully integrate into Openreach's WLR3 network) which might be adapted and
included in the portal in due course.AN will be able to draw upon a combined
resource of approximately 30in house developers to deploy new services more
rapidly. AN also believes that having these skills in-house will enable better
and more rapid integration of future acquisitions.
* Protection of its existing exclusive rights over the software - AN is pleased
to secure intellectual property rights to an industry leading service in which
AN has invested considerably, and the acquisition guarantees continued exclusive
use on some key elements of the software, which is important for the attraction
and retention of major customers.
* Provide a platform for new revenue streams working with third partytelecoms
and IT service providers - AN intends to develop the portfolio of services and
products that it can offer to European based telecoms and IT service providers,
systems integrators, resellers and dealers, based on AKJ's platform. AKJ's
current customers include over 50communications and IT service providers and the
combined portfolio of services and resources of AN and AKJ will create the
opportunity for exciting new revenue streams for both AN and AKJ's partners.
AN does not compete directly with most of these partners and recognises the
potential value and opportunity of working with AKJ's partners and will provide
the necessary assurances, as soon as possible, that it will not leverage its
position to gain competitive advantage or exert undue influence on these
partners via any services it receives from AKJ. AN expects that the communality
of interests it shares with these customers of AKJ will mean that by working
with AN, AKJ's partners will be able to leverage faster access to more market
leading services under AN ownership.
AKJ : Financials and Outlook
In the year ended 31 July 2009, AKJ increased sales by 4% to £3.6m, and the
group made a pre tax profit of £300,000, and underlying EBITDA of £585,000. The
gross assets of the business were 2.3m.
AKJ has benefited from a lower corporation tax charge, averaging 14% of pre tax
profits in the last three years due to the beneficial impact of R&D tax credits
and tax losses in the group, as well as qualifying as a smaller company. On a
proforma basis, tax charges are estimated at 22% profits when part of a larger
group.
The deferred consideration is graduated and linked to targets on the recurring
licence and software support revenues. The maximum deferred consideration will
be achieved should AKJ increase contracted revenues by 10%, net of any customer
losses within the next 12 months.
The Group is undertaking a review of both companies' billing operations and a
review of the development roadmap of both companies' developers. It is expected
that there are limited synergies to arise from the acquisition, and there will
be only minor integration of AKJ's activities within the next 12 months.
Contract Win
AN today announces the Company has been awarded a contract to manage the billing
and customer services of a major network operator. The contract is in respect of
approximately 50 business customers spending an average of over £50,000 per
annum and is expected to deliver management fees of approximately £1 million to
AN over the next 12 months. The contract is for 3 years. AN is not restricted
from selling its own non-competing products and services to these customers.
The Company won this business through a tender process in which its billing
platform and related call management and reporting services were subjected to
considerable scrutiny, as well as the company's CRM platform and customer
services, and the successful features of these services were critical to the
outcome of the tender.
The provision of billing and customer services to major network operators is
similar to other existing ancillary services AN carries out in partnership with
others, but it is not core to the strategy of the company. However, it is
expected AKJ will contribute considerably to managing this business, and the
cashflow arising from this contract win will help fund further development of
the group's CRM and customer portal.
About AKJ
AKJ was formed in 2005 by a merger of Aurora UK Limited, a software house, and
Kendrick James Limited, a provider of telecom management services to UK network
operators and corporates. It subsequently bought the trade and assets of
Software 360, a specialist billing software provider, in 2008.
AKJ occupies leased premises in Chatham, Kent and employs circa 50 staff
primarily in the areas of software development and support of managed bureau
billing and reporting services.
About AN
Alternative Networks is a leading UK independent business communications service
provider. The Company provides a fully converged communications portfolio
including fixed line, mobile, voice, data and systems solutions to over 4,000
business customers in the SME and small corporate market.
Established in 1994, Alternative Networks achieved consistent year-on-year
profitable growth. In the year ended 30 September 2008, sales increased by 30%
to £93.7m and underlying operating profits increased 31% to £10.4m.
The company listed on the AIM market in February 2005, and has a stated twin
track strategy of organic and acquisitive growth. Organic growth is fuelled by
gaining market share in the larger customers in the SME market, cross-selling
new products into its expanding customer base, and minimising customer churn
through excellent managed service. Since flotation, the Company has acquired and
integrated two significant acquisitions, accounting for approximately 25% of
today's revenues.
AN has offices in London, Theale and Manchester and currently employs over 360
staff.
ENQUIRIES:
Alternative Networks plc 0870 190 744
James Murray, Chief Executive Officer
Edward Spurrier, Chief Financial Officer
Investec 020 7597 5970
Martin Smith
Patrick Robb
Pelham Public Relations 020 7337 1509 / 07802 442 486
Archie Berens
Francesca Tuckett
This information is provided by RNS
The company news service from the London Stock Exchange
END
MSCWUGAWUUPBGMU