SOME companies just have a knack for acquisitions and M2 Telecommunications is one of them.
Yesterday it snapped up Clear Telecoms for $24.5 million -- with the money to be paid in stages to March next year.
Unlike some takeovers, the value for M2 is not in chopping costs out of Clear, but from adding 20,000 more small-and-medium-business customers to its books.
Not only will M2 cross-sell its wider range of services to these new customers, but by bulking up its revenues to about $500 million, it will generate better wholesale access rates from Telstra and Optus.
M2 is also ideally placed for the eventual transition to the national broadband network (NBN), being a pure reseller with no legacy network infrastructure facing redundancy.
Pre-tax earnings for 2011-12 will rise by about $8 million and underlying earnings per share will rise about 20 per cent or 5c a share.
There will be no change to M2's dividend policy (70% pay out ratio).
Chief executive Vaughan Bowen admitted that acquisitions were a core competency for M2 and the Clear acquisition would follow earlier examples such as People Telecom in which people and systems were carefully integrated.
"Clear is a natural bolt-on fit for us, with its small business customer base and it is already run very efficiently," Mr Bowen said.
Indeed Clear's status as a private company allowed it to run slightly leaner than M2, with revenues per employee more than $1 million and good numbers on churn and collections -- both key indicators for a telco.
I am upgrading M2 from a hold to a BUY on the basis of previous well-executed acquisitions boosting profits more than expected.
MTU Price at posting:
$3.16 Sentiment: Buy Disclosure: Held
