Arq Group readies to offload SMB, enterprise businesses

Arq Group is taking the first steps towards selling off either its SMB business or its ailing enterprise division.

Chairman Andrew Reitzer said in an ASX announcement (pdf) that the company has received “a number of different inbound approaches” for a possible acquisition. In response, Arq Group will test the market for a sale, and is in the process of preparing the necessary information required, along with appointing due diligence advisors and preparing a data room.

He also announced that the company is currently undertaking a cost review program that identified potential ongoing cost savings, though the nature of these initiatives depends on the outcome of any possible acquisition.

Both the SMB and enterprise businesses have suffered a number of setbacks in the past 12 months, though the former managed to bounce back somewhat in the last half-year results.

The enterprise business, which covers cloud services, mobile app development and data analytics, suffered from “execution issues” and “unexpected delays” in the six months ending 30 June 2019, causing EBITDA to fall from $13.1 million in the first half of 2018 to a $400,000 earnings loss.

Arq revealed in September that softening market conditions meant the enterprise business would only produce $1 – 2.5 million in underlying EBITDA for the entire 2019 financial year, down from $12 – 14.5 million in 2018.

The SMB business on the other hand, which sells domain names and renewals, web and email hosting, saw EBITDA more than double from $1.9 million to $4.1 million after recovering its subscription digital revenue sales.

“Both the SMB and ES businesses are strategic businesses in growth markets,” said Reitzer. “With clear plans in place for improved performance, it is our intention to test the market for the sale of these businesses only where a divestment achieves appropriate value for shareholders.”

Reitzer reiterated that the SMB was trading in line with its previous guidance of $9.7 – 10.7 million in underlying EBITDA in 2019, while revenue is expected between $65 – 70 million.