Yesterday I wrote about the dramatic sell off of shares in junior telecommunications company BigAir Group Limited (ASX: BGL). In just one day of trading its share price fell 9% then miraculously recovered to finish up 4.3%, after the company was issued a 'please explain' notice by the ASX.
Despite the volatile share price of late, I reminded shareholders – myself included – of the promise BigAir holds over the long-term and said: "Until I find reason to think otherwise, I believe today's share price offers compelling value to long-term focused investors."
Indeed, today's announcement of the acquisition of Oriel Technologies has sent shares of BigAir up 10.27% in early trade. Oriel is a leading managed IT services provider focused on mid-enterprise businesses.
For BigAir the acquisition increases its exposure to cloud and managed services. CEO Jason Ashton said: "By acquiring an organisation of Oriel's size and capability, we anticipate a significant boost in our cloud and managed services business, which has been identified as a key growth sector for us."
The deal is expected to be completed on or before 31 December 2014 and will be immediately earnings per share accretive. The total consideration for the deal will be capped at $15 million with $4.2 million in cash payable on completion, funded with an increased debt facility. Based on Oriel's FY14 EBITDA of $842,000, it represents a multiple of 4.98. This compares favourably with BigAir's current EV/EBITDA of 8.97.
The remaining cost of the acquisition will be based on two earn out payments for reference in FY15 and FY16. The company will pay for these out of future operating cash flows. Once the acquisition is fully integrated, BigAir anticipates substantial cross-selling opportunities and expects Oriel's revenues to reach $25 million in FY16, up from $22 million now.
