By Paul McBeth
Nov. 2 (BusinessDesk) - TeamTalk, the owner of the CityLink fibre-optic broadband service, wants to buy rural telecommunications provider Farmside Group for up to $42.1 million as it looks to grow its footprint beyond urban areas.
The Wellington-based company has agreed to buy Farmside for an upfront payment of $19 million in cash and $12 million in TeamTalk shares, with an additional $7 million cash and $4.1 million in scrip in potential earn-outs over the following 12 months, it said in a statement. The deal is subject to shareholder approval, with a special meeting expected to be held on Dec. 11.
"The purchase is an opportunity to grow both businesses by building on what each does best," TeamTalk managing director David Ware said. "I'm confident our shareholders will see value in this acquisition and we look forward to welcoming the Farmside staff and customers to TeamTalk."
The Wellington firm indicated it was keen on acquiring new businesses at last week's annual meeting, and will continue to seek other add-ons for its group.
Provided the deal gets shareholder approval, Farmside will operate as a subsidiary of TeamTalk and continue to be based in Timaru. Farmside's sellers will also be entitled to appoint a director to the TeamTalk board.
"Once the acquisition beds in, TeamTalk anticipates implementing initiatives for cross selling and other revenue enhancing programmes," the company said in presentation notes published on the stock exchange. "While not a key driver of the transaction, operational synergies are also likely to be available in the longer term."
The acquisition will almost double TeamTalk's revenue, with Farmside reporting sales of $25.4 million in the 12 months ended June 30, some 43 percent of pro-forma revenue. Still, the rural telecommunications firm's margins aren't as fat as TeamTalk's with pre-tax earnings of $2.1 million, or about 20 percent of pro-forma earnings before interest and tax.
The transaction will cost some $800,000 and increase the group's bank debt to some $35.8 million.
TeamTalk shares slipped 0.4 percent to $2.61, and have grown 19 percent this year.