Comms Group buys Next Telecom for $12M

Publicly listed business cloud communications provider Comms Group has purchased telecommunications service provider Next Telecom for up to $12 million.

Next Telecom is based in Sydney and specialises in servicing medium sized businesses providing data services, including corporate fibre and National Broadband Network (NBN) products as well as cloud IP telephony, managed IT services, managed security and other telecommunications offerings. 

Comms Group CEO and managing director Peter McGrath said there was a strong rationale behind the acquisition as it provides a complementary customer base, and a good product and technology fit across voice, data and managed services.

“The acquisition provides a complementary customer base, expanding and diversifying the Comms Group’s customer base with significantly less reliance on any one customer, particularly in the corporate mid-market sector (100 seats plus),” he said.

“Comms Group’s domestic telco business CommsChoice will also provide additional products and service offerings that Next Telecom can take to market. Importantly, Next Telecom has strong, recognised service levels.”

The purchase price is made up of an upfront consideration of $8.67 million involving $2 million cash consideration, $6.67 million in Comms Group scrip issued at $0.094 per share, EBITDA performance with an earn out payment of up to $3.33 million in Comms Group scrip issued at $0.10 per share.

Comms Group also secured $6.25 million capital raising to help partially fund the acquisition.

Next Telecom’s sales and operations executives Gavin Roache and Mark Manion will run Next Telecom as joint CEOs, while current executive chairman and CEO Ryan O’Hare will step down and join Comms Group’s board of directors as a non-executive director.  All other staff will be coming across as part of the Next Telecom team. 

O’Hare maintains an impressive history in the telecommunications market as the founder of corpTel Communications in 1993, which became one of the largest privately owned telecommunications service providers in Australia that later sold to AAPT. 

He also co-founded People Telecom in 2000, which later became part of Vocus Group. 

Post acquisition, Comms Group will have revenue of more than $30 million and annualised pro-forma earnings before tax of $4 million. 

Next Telecom’s customer span across retail, legal, distribution, freight, finance, hospitality and manufacturing industries. During FY21, Next Telecom is forecast to generate $15.5 million in revenue with pro-forma annualised earnings before tax reaching more than $1.5 million.

Comms Group anticipates FY21 earnings before tax to be in line with FY20, despite Covid headwinds, particularly as McGrath hinted that within the last few weeks, “Comms Group has been involved in signed or proof of concept trials with over six leading corporates and enterprises for Asia Pacific unified communications solutions and we are building a pipeline of opportunities with some leading global businesses.”

In August Comms Group said it was working on the assessment of a number of merger and acquisition (M&A) opportunities as it intends to grow via strategic growth if the “appropriate” opportunities arise.