A look at small cap Telecom player, Tomizone’s Rent Book Acquisition

A Wi-Fi software service operator, Tomizone Limited (ASX: TOM), on 12 April 2019 announced a trading halt for its securities on ASX pending the release of acquisition announcement. The shares of TOM will remain under the trading halt until the commencement of the trading on 16 April 2019 or release of an announcement, whichever is earlier.

On 11 April 2019, the board of Tomizone Limited (ASX: TOM) announced its strategy to restructure its balance sheet, increase the size of its revenue along with the customer base. The strategy also covers the finalization of the operational and financial strategy that was put in front of the existing board 12 months ago.

Rent Book Acquisition:

The announcement made by Tomizone Limited on 11 April 2019 highlighted that it has entered into a binding sale and purchase agreement to acquire around 3,000 equipment rental contracts (known as “EWL Rent Book Acquisition”). The vendors include the EFTPOS Warehouse Ltd (EWL) and the subsidiary company of FE Investments Group Ltd (ASX: FEI), FE Investments Ltd. EWL remained the vendor of the Ironman Group Ltd which was purchased by Tomizone in 2017.

The acquisition funding will consist of a combination of the new Senior Debt Facility with FE Investments Ltd along with the new convertible notes. The total purchase price is estimated to be NZ$7.8 million.

The company had identified a set of reasons for the acquisition of the EWL Rent Book.

  • From the time of completion, the EWL Rent Book has provided gross monthly revenue of ~NZ$280k. The net monthly revenues after meeting the operating cost were NZ$170k per month. This will help in increasing the net cash flow and EBITDA of Tomizone immediately, as per the company.
  • Like other products which are being supplied by Tomizone, the product set behind the EWL Rent Book will be similar to its earlier products. Hence, it can be said that Tomizone is well positioned to provide service and support to those contracts.
  • The Rent book offers more than 3,000 unique customers which range from SMEs to listed multinationals. Through this database, Tomizone has an excellent opportunity where it could cross-sell its wider range of products and also increase the average spend per customer.
  • EWL Rent Book has never-ending cash flow and is in excess of NZ$ 5.1 million with an average of 19 months of contract expiry and renewal face value of NZ$10.1 million upon expiration.
  • The acquisition of EWL Rent Book consists of two stages. Stage 1 includes the acquisition of a portion of the existing contracts as well as all the future re-signing rights. The second stage will include the balance of contracts and existing month to month income in case the contracts have expired.
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However, there are multiple conditions for the acquisition of EWL Rent Book. These include: Tomizone has received all regulatory approvals along with the approvals from ASX. Secondly, Tomizone completes the raising of the $5 million to $6 million funds via convertible notes. Thirdly, Tomizone and FE Investments Ltd have entered into Longform documentation regarding new debt facility.

Senior Debt Facility

Tomizone and FE Investments Ltd have signed a binding conditional Term Sheet for new senior debt facilities that will help in the funding of acquisition of the EWL Rent Book along with the repayment of the existing secured debt of Tomizone. This will include limit of NZ$ 12.65 Mn with average interest rate of 11.75% (before fees).

The shares traded last on 9 April 2019 with the closing price of A$0.003. TOM has a market cap of A$1.28 million and approximately 425.2 million outstanding shares.


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