SYDNEY, AUSTRALIA: Sovereign Cloud Holdings Limited (AUCloud) is set to acquire three businesses, aiming for product and revenue diversification and a profitability path by FY25. The acquisitions are part of a strategic review to enhance capabilities in cybersecurity and cloud solutions.
The combined entity, MergeCo, is expected to generate an Underlying EBITDA of approximately $4.7 million on revenues of $36.6 million by FY25.
The acquisitions include Canberra-based PCG Cyber Pty Ltd, Queensland and South Australia’s Venn IT Solutions Pty Ltd, and assets of Arado with a strong presence in Queensland. The total purchase price for these acquisitions amounts to $28.0 million, with a mix of cash, shares, and deferred considerations.
To support the acquisitions, AUCloud is undertaking an equity raising of at least $25 million, underwritten to $30 million. The offer includes a pro-rata accelerated renounceable entitlement offer, allowing shareholders to purchase new shares at a significant discount.
Ord Minnett Limited is the Sole Lead Manager, Bookrunner, and Underwriter to the offer, with Maddocks as the legal adviser. The offer is subject to shareholder approval at an Extraordinary General Meeting (EGM) scheduled for April 2024.
The company’s leadership change in February 2023 has been instrumental in driving growth and synergies, with significant improvements in revenue, ARR, and ARPU, alongside a reduction in expenses.
The strategic rationale behind these acquisitions is to create a scaled enterprise in the fragmented cloud and cybersecurity sector, leveraging capital deployed in sovereign cloud infrastructure to increase competitiveness. With corporate Australia and government entities focusing on strengthening their cloud and cybersecurity posture, MergeCo is well-positioned to capitalize on this trend.
The financial profile of MergeCo post-acquisition forecasts a positive operating cash flow within the first half of FY25, supported by clearly identified synergies. The funding from the equity raising will cover the cash consideration for the acquisitions, transaction costs, and working capital requirements for MergeCo.
NEXTDC, holding 33.6% of AUCloud’s share capital, has committed to a substantial subscription under the offer, with additional commitments from the company’s directors. The offer is available to all shareholders in Australia and New Zealand, with a record date set for 21 March 2024.
