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Iomart (LON:IOM) report: Acquisition of Titan Internet for ?4.2m

Contributed by Daniel Stewart & Company

By Daniel Stewart & Co

- iomart Group has announced the acquisition of Titan Internet Ltd., for ?3.6m in cash and up to ?0.6m payable no earlier than 1 April 2011, subject to performance criteria.

- The company states that the acquisition is “in line with iomart's strategy of becoming the UK's foremost hosting company, focused on the delivery of high-end managed hosting environments and solutions”.

- Titan delivers managed hosted solutions and currently manages over 1,000 servers for SMEs and larger corporate clients. In the year to August 2009 its net assets were ?765k with revenues of ?3.433m, EBITDA of ?648k (18.9% margin) and pre-tax profits of ?342k. iomart reports that Titan has net cash of approximately ?500k, which indicates a cashadjusted purchase multiple of 5.2x EV (DSCE).

- iomart sees “potentially significant cost savings” once integrated into the Group. Therefore it “expects the acquisition to be immediately earnings enhancing before the one off costs of integration synergies.”

- iomart CEO Angus MacSween stated: "our strategy has always been to grow both organically and through acquisition. Having recently announced that our organic growth is ahead of market expectations, we believe the acquisition of Titan will accelerate that growth through the incorporation of an excellent managed hosting operation with an impressive client list."

- DSC earnings estimates are shown pre-acquisition. However, we initially estimate that pro-rata Titan could add ?1.7m in revenue and contribute ?300k in EBITDA in the year to March 2011 (adjusted Group EBITDA therefore ?6.3m), and in FY’12 take Group revenue to ?30m with EBITDA at ?9.2m, indicating an EV/EBITDA of 9.2x (cash-adjusted).

- iomart is due to announce interim earnings on Nov 29th. On 1st October it stated that it expects “results for the full year will be ahead of market expectations”.