Speedcast International Limited (ASX: SDA) has announced that it has acquired Globecomm Systems Inc for cash consideration of $134 million which is net of cash acquired value. Globecomm expertise in providing remote communications and multi-network infrastructure to its clients. It operates in more than 100 countries. The acquisition will place Speedcast to achieve global leadership and will also provide Speed-cast with the more competitive advantage in the Governmental space.
The company’s core business vision is to be a leader in the provision of remote communications and IT services worldwide by focusing on creating value for customers through delivering high quality, innovative, and tailored solutions with exceptional customer service. Key to the strategy is the ability to retain the flexibility to react to changes in customer needs and industry trends. The company provides product & services including Network Services, Value Added Services, Equipment Sales, Wholesale Voice, Professional Services and System Integration.
The acquisition will enhance Speedcast’s performance with the previous acquisition of UltiSat in November 2017. It will boost Speedcast’s revenue in the Government sector almost by double. The company will be able to increase its scale of operations, have clear visibility and capabilities in the competitive growth market as a result of the acquisition. Speedcast’s scale of operations in the Maritime and Enterprise sectors will help Globecomm.
The CEO of Speedcast CEO Pierre-Jean Beylier said that the acquisition of Globecomm matches with Speedcast’s strategy to build competitive advantages based on scale, reach and unique capabilities. This feature of the company will add strength to the innovation capabilities of Speedcast as well. The company will also have improved solutions and strong engineering expertise.
Speedcast will gain significantly from the deal which will help them to achieve a targeted US$15 million in annual cost synergies within eighteen months of completing the acquisition. The cost synergies from the acquisition will impact positively on the various areas of the business, in terms of footprint rationalization, improvement of networks and improved procurement.
Speedcast took a US$175 million incremental term loan which is over and above its existing US$425 million US Term Loan due as of 2025. The acquisition consideration, payment of fees, transaction expenses and repaying a portion of the outstanding loans under the company’s revolving credit facility has been paid from the proceeds from the term loan.
As stated in the financial covenant in the company’s debt facilities, it is a requirement to maintain net leverage at or below four times EBITDA. If the revolving credit facility is more than 35% drawn by the company, then only the covenant is applicable. Speedcast has net leverage (pro forma) for the transaction was 3.4 times its EBITDA as at June 30, 2018.
The stock of Speedcast is currently trading at $3.460 with a current market capitalization of $830.81 million. The company posted a YTD return of -33.52% and a negative return of 39.12% over the last six months period, with a 52-week high and low of $6.830 and $3.100 respectively. It is currently trading at PE multiple of 54.220x with an EPS of A$0.064.
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