Vonex in “transformational” move to acquire part of MNF Group's Direct Business

Vonex in “transformational” move to acquire part of MNF Group's Direct Business

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Vonex Ltd (ASX:VN8) has signed a conditional non-binding term sheet with MNF Group Limited (ASX:MNF) to acquire part of that group’s Direct Business. The news was cheered by investors, pushing the company’s shares as much as 17% higher to 17 cents in intra-day trade on Monday. This proposed transaction has been described by the company as being transformational as it is expected to deliver considerable scale with more than 5,250 new business customers and more than 100 new Australian telco channel partners. It is also expected to almost double Vonex’s annualised recurring revenue on a full-year basis to $32 million and will add approximately $5 million in EBITDA. The Direct Business, which will be acquired by Vonex, delivered revenue of $15.6 million in 2020 of which around 89% was derived from the business segment and about 11% from the residential segment. “Meaningful national footprint” Vonex managing director Matt Fahey said: "We would be delighted to welcome MNF's Direct Business and its customers to the Vonex group. “As the new 'work from home' paradigm has become part of life for more Australians, we have increasingly focused on providing Australian SMEs with telco services that are reliable, affordable, flexible and scalable. “Migrating and integrating the Direct Business with our own will bring us a meaningful national footprint and help us to gain the scale through which we can continue to deliver strong value to customers and investors." Strategic rationale MNF’s Direct Business sells cloud phone, internet and mobile services directly to SMEs and residential customers in Australia, as well as dedicated audio and video conferencing business. This proposed transaction will materially expand Vonex's footprint of small-to-medium and residential customers across Australia and will see the company migrate approximately 5,250 new business customers to its platform. The company’s demonstrated capability in migrating and servicing hosted PBX customers makes the company a natural owner of the direct business. This proposed transaction would also significantly strengthen Vonex's channel partner network, bringing more than 100 experienced new channel partners through which the company can reach new customers. The business would add to Vonex’s existing Sydney presence and provide the opportunity to leverage its proven sales and marketing processes in Melbourne, and it will also introduce several cross-sell opportunities for the complementary product. Consideration and funding The proposed consideration for the acquisition is $31 million payable in cash, comprising $20 million upfront on completion and $11 million in deferred consideration payable in 12 monthly instalments post-completion. Vonex will also benefit from $1 million in wholesale credit returning to its account. The company and MNF Group plan to sign the asset sale agreement in July 2021 with completion expected to take place on July 31, 2021. Vonex intends to fund the upfront consideration primarily from a new debt facility and through its existing cash reserves. It also intends to fund the deferred consideration utilising cash flow generated from the combined businesses, supplemented through the raising of incremental debt and/or equity capital as required. In line with strategy MNF Group CEO Rene Sugo said: “The divestment of these direct businesses is in line with our strategy to simplify MNF’s business and drive growth in Communications Platform as a Service (CPaas) and Unified Communications as a service (UCaaS) service. “Importantly, funds from the sale will be reinvested into our growing wholesale business and our expansion offshore. “Vonex has been a long-term partner to MNF Group and we have been very impressed with their technical capability and detailed migration plan. “This was a significant factor in our decision to select Vonex to acquire the Direct Business.”

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