2nd Nov 2009 07:00
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
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 their fixed, 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 30 in 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 party telecoms 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 50 communications 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 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:
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Alternative Networks plc |
0870 190 744 |
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James Murray, Chief Executive Officer |
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Edward Spurrier, Chief Financial Officer |
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Investec |
020 7597 5970 |
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Martin Smith |
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Patrick Robb |
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Pelham Public Relations |
020 7337 1509 / 07802 442 486 |
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Archie Berens |
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Francesca Tuckett |
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