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Nexion completes Blue Sky acquisition on better terms, set to increase its recurring revenue base

Nexion’s acquisition of Blue Sky will not only save costs and increase Nexion’s product range, but will also add to its recurring revenue mix.

Hybrid cloud provider Nexion Group (ASX:NNG) has finalised its acquisition of Perth-based telecommunications and network solution provider, Blue Sky Telecom, on revised and  improved terms.

The amended agreement means that Nexion will only have to make a single $2 million payment in cash, which will be formally settled in the coming weeks.

This is much better terms for Nexion than the original agreement signed in April.

That initial agreement saw an all-scrip consideration equivalent to 1x the FY21 revenue of Blue Sky at 20 cents per share, plus additional three tranches.

The three tranches were incentives that would have been payable to Blue Sky in FY22, FY23, and FY24.

The FY22 payment was to be calculated as revenue achieved in excess of 135% of the FY21 figure.

Further incentives would also have been payable to Blue Sky in $2 million worth of shares, if Blue Sky exceeded $12 million revenue in FY23, and $24 million in FY24.

A perfect fit

The original plan was for Blue Sky to continue to operate as an independent business alongside Nexion, focusing on the WA market.

Upon further analysis however, both parties have agreed that integrating the teams would deliver a stronger business better able to tackle larger projects across the state.

Nexion believes that Blue Sky is a perfect fit for its business, as  its telecommunications and satellite services complement Nexion’s own capabilities.

Blue Sky’s services, such as its hosted voice platform, MPLS network, and cyber security services, could also be combined with Nexion’s offerings to accelerate growth.

For example, growth could be achieved through combining Blue Sky’s telecommunication services at the “edge” of the customers’ networks, with Nexion’s rollout of its core SD-WAN and Hybrid Cloud network.

Blue Sky’s 380 active clients in WA have underpinned its revenue, which grew rapidly by 20% to $2.4m in FY20,  and to $3.93M (unaudited) in FY21 despite COVID-19 obstacles.

Almost 86% of its revenue is long term recurring revenue, which will materially add to Nexion’s own recurring revenue mix.

“The combination of the two businesses will increase our resource-base and broaden our skill set to help deliver these single provider ICT projects,” commented Nexion Group CEO, Paul Glass.

Glass also believes the synergy created should yield material cross-sell opportunities and the possibility of lower costs.

“Blue Sky will add a new suite of products we can introduce to customers to increase revenue from our existing base. The cost rationalisation within the supplier base and service provision is a key focus of the combined company.”

The founders of Blue Sky, Daniel Fairbairn and Simon MacFarlane, will remain in the business for at least six months, and may remain on thereafter depending upon the outcome of the integration effort.

Rapid progress

Nexion has just come off a solid quarter, as it continues to hit target metrics since its highly successful IPO in February.

The company was recently awarded the prestigious Tier 1 Global Partner status by IBM Global Technology Services (IBM GTS), which means that IBM can purchase from Nexion anywhere in the world.

In June, Nexion launched  its hybrid cloud solutions with IBM GTS in New Zealand, which will underpin its plans to develop a globally connected hybrid cloud and SD-WAN solutions.

Earlier this month, Nexion also took the helm of Aryaka in Australia and New Zealand (ANZ) as Principal Partner, allowing it to market and sell the Aryaka Cloud-first Global SD-WAN solutions and network services in the region.

That agreement marked the company’s push into the Secure Access Service Edge or SASE (pronounced “sassy”) market.

Global consultant Gartner predicts that 40% of enterprises will have explicit strategies to adopt SASE by 2024, up from just 1% in 2018.

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