Five MSPs are merging to form a US$15 million managed services provider that will serve multiple countries, according to a chairman's letter to prospective shareholders.
The deal combines CommsChoice, Telegate, Oracle Telecom, Woffle and Telaustralia. Together, the five companies will be called CommsChoice Group. The unified company's footprint will extend across Australia, New Zealand, Singapore and additional regions.
As a whole, the combined MSPs generated about AUD$20 million in revenue for 2017 -- or about US$15 million. Additional financial metrics include:
- Growth rate: Together the businesses have had a 24.1 percent compound annual growth rate (CAGR) from 2015 to 2017.
- 2018 Revenue Forecast: Based on that history and deal synergies, CommsChoice expects 2018 revenues to surge toward AUD$27.83 -- or about US$20.93 million.
- 2018 Profit Forecast: The company expects 2018 EBIT (earnings before interest and taxes) of about AUS$3.42 million -- or about US$2.57 million. (Side note confession: I don't know if/how how Australia's EBIT calculation varies from U.S. EBITDA calculations.)
- 2018 Profit Margins: A quick calculation based on CommsChoice estimates pegs EBIT profit margins of about 12.3 percent.
Details about the deal surfaced in a prospectus letter from CommsChoice Chairman John Mackay to potential shareholders. The company is planning an AUS$7.5 million IPO to fund the five-way M&A deal -- and to fuel additional acquisitions.
CommsChoice's expertise will extend across ICT (information and communications technology), VoIP, networking, cloud services, unified communications as a service (UCaaS), SD-WANs and more. The company's core focus will involve Adaptive Connectivity as a Service (ACaaS) -- a delivery platform that "allows CommsChoice Group to consult, review, implement and adapt ICT solutions to individual client needs."
CommsChoice Growth Strategy
The combined business will have about 50 employees, while supporting 3,000 customers across offices in Australia, Singapore and the Philippines, the letter stated.
"CommsChoice Group is globally scalable, with 23 Virtual Service Integration Points (VSIPs) strategically located in 16 countries integrating over 20 wholesale carriers and ICT suppliers," Mackay wrote. "As part of CommsChoice Group’s strategy, it does not own or invest in physical carrier infrastructure. The Directors believe that this strategy allows CommsChoice Group to ensure a ‘client‑first’ relationship as the Company is not motivated or constrained to physical carrier infrastructure assets."
To drive growth, CommsChoice plans to focus on five areas:
- Drive the service offerings to new clients as they demand more flexibility and access to products
that can deliver improved functionality; - Expand the CommsChoice Group service offering in Australia, New Zealand and Singapore
leveraging its Services Based Operator Licence (SBO License); - Expand the international delivery of services leveraging CommsChoice Group’s global VSIPs;
- Leverage the existing client base to cross sell combined service offerings; and
- Pursue a pipeline of acquisition opportunities.
Key target customers include enterprises with 250 to 5,000 employees and SMBs with 20 to 250 employees. The focus will include a push beyond Australia, New Zealand and Singapore, the prospectus asserts.
CommsChoice Managed Services, Rivalries
Key services, according to the prospectus, will span:
- CommsAssure Quality Voice and Data: SD‑WAN services; multi‑carrier fibre, ethernet, NBN, VoIP and more.
- CommsMobilise Total Mobility Management: Focuses on the secure and predictable access to ICT products and services, anywhere and anytime on any device.
- CommsConnect Advanced Communications: Focuses on the harmonious unification of Cloud and software for ICT connectivity, including unified communications services; multi‑vendor Cloud video; Cloud security; Cloud gateway; and Cloud solutions.
Although the combined CommsChoice gains scale through its merged components, the company still faces intense competition. Key rivals, the prospectus notes, include
- Telstra;
- SingTel;
- Spark (NZ);
- Vocus;
- AAPT;
- Over the Wire;
- MyNetFone; and
- Macquarie Telecom.
CommsChoice Leadership Team
The MSP's board of directors and leadership team boasts some heavy hitters. The prospectus points to these assertions:
- John Mackay, Independent Non‑Executive Chairman, has over 15 years’ experience as a Chairman and Director of companies in the communications and utilities sectors;
- Peter McGrath, independent Non‑Executive Director, has over 30 years’ experience across a variety of banking and telecommunications roles.
- Ben Jennings, Non‑Executive Director, has over 20 years’ experience in managing and directing companies.
- Cameron Petricevic, Non‑Executive Director, has strong expertise in mergers and acquisitions and public markets.
- Stephen Bell, Non‑Executive Director, has over 20 years’ experience in the financial services industry with a software and business process efficiency focus.
- Grant Ellison, Executive Director and Executive General Manger – Enterprise, has over 25 years’ experience in senior strategy and multinational business development roles in the ICT, manufacturing and banking sectors.
- Ben Gilbert, Chief Executive Officer, has over 25 years’ experience in corporate finance and strategy roles including 15 years in the telecommunications industry.
- Patrick Harsas, Chief Financial Officer, has held roles in both listed and unlisted businesses across multiple sectors including utilities, agriculture and finance.
- Brent O’Shaughnessy, General Manager – Business, is an experienced senior executive with specialization in project and change management.
- Tristan Plummer, General Manager – International, has over 20 years of ICT industry experience.
We'll be watching to see how the IPO performs while tracking next moves from CommsChoice
MSP Merger, Acquisition Activity
M&A activity involving MSPs worldwide has been "hot" this year, according to Service Leadership CEO Paul Dippell, who described the M&A trends during a recent M&A webcast with ConnectWise.
Private equity firms are scouring the market for potential deals, Dippell notes, but well-scaled MSPs with healthy profit margins are increasingly difficult to find. That's forcing some smaller MSPs to roll up into larger firms before potentially attracting private equity dollars, Dippell says.
