Spirit-InfoTrust acquisition is a $34.6 million deal

Spirit Technology Solutions will buy InfoTrust for a total consideration of $34.6 million, it revealed today.

Spirit’s acquisition of InfoTrust, first announced yesterday, will see Spirit combine its security operations centre (SOC), through its Intalock business, and managed services, with InfoTrust’s assurance and governance, risk management and compliance (GRC) services.

InfoTrust cofounder and CEO Simon McKay will join Spirit’s board as executive director. InfoTrust cofounder and CEO of the MyCISO business, Dane Meah, will also join the Spirit board.

The acquisition will be paid for with $14 million in cash on completion, $14 million in Spirit shares and $6.6 million in deferred consideration to be paid in cash in three tranches.

The script consideration is subject to voluntary escrow, with 5 percent of the script consideration being released after each of three, six and nine months following completion of the acquisition, and the remainder released 12 months after completion.

The acquisition and associated costs will be funded in part by a placement to 263 Finance Pty Ltd, which is a significant shareholder and associate of non-executive director Shan Kanji, to raise $16 million.

It will also be funded by 304.3 million Spirit shares issued to InfoTrust shareholders with an implied value of $14 million, and $6.6 million in deferred consideration to be satisfied using combined group earnings and/or existing cash.

The scrip consideration and shares under placement are subject to shareholder approval.

Spirit was jointly advised by Unified Capital Partners (UCP) and Ord Minnett on the placement.

Synergies

The deal will give Spirit, which has a well-established presence in Brisbane, a deeper footprint in Sydney and Melbourne.

Spirit will get to serve InfoTrust’s customers with its SOC. Spirit also expects an opportunity to increase margins of its existing cybersecurity division by implementing InfoTrust’s delivery approach. It also sees cross-sell opportunities.

Spirit expects the acquisition will result in its combined cyber security group revenue totalling $65 million.

It stated that InfoTrust is forecast to deliver $4.4 million unaudited EBITDA in FY24.

Spirit also forecasts SOC synergies of circa $1.4 million on an annualised basis.

Additionally, Spirit expects synergies of more than $1.4 million in the 2025 financial year via the integration of the company's cybersecurity division Intalock with InfoTrust. 

"We are thrilled to be expanding our presence in the growing cybersecurity market and to be strengthening our position in the major markets of Sydney and Melbourne via this acquisition," Spirit's CEO Julian Challingsworth stated.

"The deal gives us ownership of a leading Australian cybersecurity firm; a company that has strong sales growth and profitability, a well-regarded CEO and a diverse suite of well-established and loyal clients" -  Julian Challingsworth, Spirit Technology Solutions

"It delivers on our strategy of growth via acquisition and our overall goal of becoming one of Australia's leading providers of modern and secure digital workplaces."

Preliminary financial results

Spirit also announced preliminary unaudited group revenue of $57.03 million for the first half of the 2024 financial year, compared with $67.29 million in H1 FY23.

Preliminary unaudited group underlying EBITDA for H1 FY24 was $160,000, compared with $3.98 million in H1 FY23.

The statutory loss for the group in the first half of the 2024 financial year was $5.2 million, down from a $7.79 million loss in the first half of FY23.

Spirit reported continued positive momentum in its cyber security division.

Its collaboration and communication division finished the half in a strengthened position, despite Spirit reporting that “softer trading experienced in H2 FY23 continued into H1 FY24, with demand remaining subdued due to lack of SME business confidence, inflation, increasing interest rate environment and poor business sentiment.” Spirit reported that “The business has seen a positive start to 2024 with customers returning to an improved level of confidence and sales.”

The company’s managed services results were “extremely disappointing”, citing ongoing restructuring and downsizing and a slower-than-expected sales pipeline rebuild”.

It expects its managed services segment to breakeven in Q4 FY24 and return to profitability in FY25.

The H1 FY24 results reflect "the majority of the restructuring initiatives undertaken and associated one-off costs”.