Nexion’s expansion has continued since IPO, with the acquisition of Blue Sky Telecom that will increase recurring revenues and accelerate its growth.
Hybrid cloud provider Nexion Group (ASX:NNG) is making headway toward its expansion strategy, announcing the acquisition of Blue Sky Telecom, a Perth-based telecommunications and network solution provider.
The acquisition delivers on Nexion’s strategy outlined in its prospectus, of acquiring a value accretive local telecom provider that could bring not only skills, but revenues and growth to the group.
The acquisition is for an up-front, all-share consideration of $2 million, with a further scrip-only consideration at a deemed value of any revenue achieved in FY21 that exceeds $2 million.
Further incentive will be paid to Blue Sky at the end of 2022, which equals to the revenue achieved in excess of 135 per cent of the FY21 figure. Two additional incentives will also be paid in $2 million worth of shares – if Blue Sky exceeds $12 million revenue in FY23, and $24 million in FY24.
Nexion co-founder and CEO, Paul Glass, says that Nexion would benefit from these performance milestones.
“The terms of the acquisition have been designed to strongly align the vendor with Nexion’s ongoing success, and should the terms of performance milestones be met, all shareholders can be expected to benefit strongly in coming years as Nexion’s revenue will have grown very significantly.”
Rationale behind acquisition
Nexion says the acquisition will combine both companies’ products and infrastructure, to create a synergized, full-service communications company.
Blue Sky’s services such as its hosted voice platform, MPLS network, and cyber security services could 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.
Glass also believes the synergy created “should yield material cross-sell opportunities and the possibility of lower costs”.
This could be achieved as Blue Sky’s voice and media services and Nexion’s global inter-connected network are complimentary services, expanding demand for Nexion’s services, while reducing delivery cost to Blue Sky.
In addition, Blue Sky could become a key route for customers to access Nexion’s global Hybrid Cloud offering. This could be done by interconnecting all of Blue Sky’s products and services into one easy-to-deploy Hybrid Cloud enabled fill stack offering. The Hybrid Cloud is one of the significant infrastructure assets under Nexion’s flagship OneCoud brand that it has developed over the last four years.
Importantly, the acquisition will create additional recurring revenues for the group, through Blue Sky’s 380 client book. The company’s revenue has grown by 20 per cent to $2.4 million in FY20, and has so far already earned $2.9 million for FY21 up until March. The significant increase in FY21 revenue is due primarily to its new Enterprise and Satellite divisions.
Nexion’s core offering is the private cloud infrastructure integrated with public cloud services, to form the Nexion Hybrid Cloud solution it calls OneCloud.
The company has been making good progress since IPO.
In February, it signed a 5-year multi-million dollar contract with IBM to deploy its hybrid cloud solution that includes IaaS, SD-WAN and secure networking. It was the second contract with IBM in the last 12 months, and would generate $4 million over the 5-year period for the company.
This was quickly followed up by another deal in March, where it launched a new network node in Aucklandwith its global partner, US multinational Aryaka Networks Inc.
These deals are evidence of Nexion’s ability to execute on its global scale-up plans, having already established successful hybrid cloud solutions in Perth and Sydney.
Nexion’s shares made their debut on the ASX in February, after raising $8 million in an oversubscribed IPO.