Melbourne IT to acquire WebCentral

Melbourne IT as reached an agreement with the board of WebCentral to acquire 100 percent of the shares of the web-hosting company.

The deal, worth around $65 million, according to Melbourne IT CEO Theo Hnarakis, is likely to be made through a mix of 60 percent shares priced at $1.53 and 40 percent cash.

The deal will also see WebCentral chair Lucy Turnbull and director Sean Howard move across to Melbourne IT’s board.

Hnarakis would not confirm the fate of CEO, Andrew Spicer, but said the combined entity would have a combined staff of 300 local and 100 international personnel.

The deal will be voted on by WebCentral shareholders in late September, with integration expected to commence in October assuming a positive vote.

According to Hnarakis, Melbourne IT had been chasing WebCentral’s chair Lucy Turnbull for 18 months in an effort to make the business case for an acquisition.

“We identified WebCentral as a great opportunity and we have been working through discussions and today is the right time to move,” he said.

“I think it was trust, performance and ability to execute on strategy [which finally clinched the deal]. We have also been moving into their sweet spot of web hosting.”

Hnarakis said WebCentral was attractive due to its “leadership position” in the market and its “corporate, government and SME customer base”. The company has about 70,000 SME customers and a sales channel of 1100 resellers, including Telstra.

Melbourne IT would look to make cost savings “in the millions” over the next few years by transferring Web Central to its own billing, accounting and provisioning systems, and by cutting back on auditors, insurers and bankers, Hnarakis said.

In turn, Melbourne IT would look to access Web Central’s products and services – especially its software as a service suite – to offer to its own base of 240,000 SME customers.

The combined entity is expected to have revenues of $130 million positive, earnings per share of $0.12 and profits of $8.5 - $9 million for the next financial year, Hnarakis said.

Despite having the cash and shares to purchase WebCentral outright, Hnarakis said the company had decided to take on a debt facility of $15 million in order to finance further acquisitions.

WebCentral CEO Andrew Spicer said the proposal was “a great deal” which would see the creation of “a leading web services business.”

“Two years ago our share price was 65 cents and bow this deal is offering $1.53,” he said.