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Daisy Group (LON:DAY) report: Acquisition of SpiriTel for ?27m

Contributed by Daniel Stewart & Company

By Daniel Stewart & Co

- Daisy has announced a cash offer for SpiriTel priced at 51.5p/share (a 13.2% premium to Nov 9th price), or ?27.3m (fully diluted) plus ?6.1m of existing bank debt. Daisy reports that the deal will be funded from its existing bank facilities (totalling ?75m); it expects EPS enhancement in FY’12 of approximately 1.2p/share (+11% on DSCE) inclusive of some ?700k in estimated potential cost savings. The deal is priced at an indicative 5.7x EV/EBITDA.

- Admitted to AIM in 2004, Spiritel was built through reorganisation and acquisition by CEO Alastair Mills, in many ways a miniature version of Daisy itself, espousing a matrix cross-selling approach to acquired operations across mobile voice and data, fixed-line voice and data networks, and IP.

- SpiriTel provides integrated telecoms services to some 4,200 SMEs and larger corporates, is a mobile voice and data reseller for 40,000 business users, has Mitel accredition for its virtual network platform, and recently (August) won a ?5m managed-services contract with Punch Taverns.

- Daisy reports that it has received acceptance for 90.9% of (fully-diluted) SpiriTel shares.

- Daisy CEO Matt Rileysaid: "This is the largest acquisition Daisy has made since coming to market last year. The Daisy Board believes that this acquisition gives Daisy a strong foothold in the mid-market, strengthening our sales team and engineering force, while significantly enhancing both our product portfolio and customer base. With our data hosting capabilities from the former Vialtus Solutions Limited business, this deal gives us a great cross-sale opportunity to sell hosted solutions and fill our three data centres in London, Manchester and Fareham. In addition, SpiriTel's position as a Mitel Premier Partner, coupled with a nationwide engineering force will see enhancements to Daisy Group’s systems and maintenance division.”

- We see the deal as earnings-enhancing, reiterate our “Buy” stance on Daisy Group and will adjust our earnings outlook accordingly.