CentralNic acquires Team Internet (ParkingCrew and TONIC)

CentralNic Group plc (AIM: CNIC) announced it has signed a conditional agreement to acquire the entire share capital of web services provider, Team Internet AG, Germany.

Team Internet consists of two products: ParkingCrew that offers domain parking , enabling our customers to monetize their domain portfolios, and TONIC that is a self-service platform to buy and sell traffic.

Acquisition Highlights

·    Acquisition of leading domain name monetisation services provider, Team Internet

·    US$48m total consideration payable, US$45m is cash, to be funded by an underwritten bond issue

·    Expected to be immediately earnings enhancing and significantly accretive in the financial year ending 31 December 2020 before any synergies

·    Acquisition a strong fit for CentralNic’s stated strategy to derive recurring revenues from domain related technologies

·    Significant opportunities to drive cross selling by expanding both customer base and product set

·    Team Internet generated US$66.7m of revenue (unaudited) and US$10.6m of Adjusted EBITDA (unaudited) in the 12 months to 30 June 2019

·    This acquisition takes the Group to US$198.2m of unaudited pro forma revenue and US$31.8m of unaudited pro forma EBITDA*

·    Net debt expected to be US$76m following completion of the Acquisition. Net debt to EBITDA is expected to be 2.4x on completion and is expected to reduce to approximately 2.0x after the first full year of ownership

* Based on the latest available publicly announced financial statements of CentralNic and the companies acquired after CentralNic’s latest balance sheet date of 30 June 2019

Trading Update Highlights

·    Unaudited revenues of US$77.1m and adjusted EBITDA of US$13.1m for the period from 1 January to 30 September 2019

·    The net debt position was US$35.9m as of 30 September 2019, reflecting the issuance of a EUR 50m bond on 3 July 2019 and continued strong cash generation

·    The Group, prior to any contribution from the acquisition, continues to trade in line with the high end of analyst expectations

Ben Crawford, CEO of CentralNic, said: “The acquisition of Team Internet is a natural extension of CentralNic’s domain sales business and a major step in adding domain related web services to CentralNic’s service offering. It is another web-based recurring revenue business that will be significantly earnings enhancing for the financial year ending 31 December 2020.”

Introduction

CentralNic announces it has today signed a conditional agreement to acquire the entire share capital of web services provider, Team Internet from Matomy Media Group Ltd. (“Matomy”) for a total consideration of US$48m subject to customary working capital adjustments.

The total consideration of up to US$48m comprises a cash consideration of US$45m, of which US$3m is deferred, and a share consideration of US$3m payable in Group shares. This represents a multiple of 4.5 times Team Internet’s EBITDA on a continuing basis for the trailing 12 months to 30 June 2019 of US$10.6m. The acquisition is expected to be immediately earnings enhancing and significantly accretive in the financial year ending 31 December 2020 on a standalone basis before any integration or revenue synergies.

Following completion, CentralNic will be one of the world’s leading providers of domain name monetisation services with a proprietary platform that enables domain name investors to generate recurring advertising income from their assets.

Team Internet is based in Munich, Germany. Over the ten years since it launched, it has continuously developed its platform and delivered audited revenues of US$75.6m and Adjusted EBITDA of US$14.2m in the year ended 31 December 2018, and US$66.7m of revenue (unaudited) and US$10.6m of Adjusted EBITDA (unaudited) in the 12 months to 30 June 2019.

Team Internet experienced an increase in revenues in the year ended 31 December 2017 due to the collapse of a competitor. Following a period of rationalisation and focus on retaining high quality customers, Team Internet’s revenues have reduced to levels that are stable and highly recurring in nature. From this revised base, Team Internet has returned to month on month revenue growth in Q3 2019.

Team Internet’s revenue is highly recurring with approximately 35,000 individual customers signed to rolling contracts to monetise a total of more than 20 million domain names using Team Internet’s proprietary technology for matching domain names with the highest paying advertisers. These contracts earn revenues for Team Internet on a monthly recurring basis with high levels of retention.

The acquisition will add an additional 40 staff in Germany, shifting CentralNic’s critical mass with almost 200 engineering and other staff members based there. Team Internet is an extremely efficient automation-focused company which derives c.US$1.6m in revenues per staff with CentralNic’s focus being on opportunities to grow the business through CentralNic’s existing global sales and marketing networks and by bundling and cross-selling as opposed to cost savings. The Directors believe that domain monetisation is a service that could potentially be bundled with an estimated 30% of all domain name registrations. This represents a significant opportunity to the Group as CentralNic currently has 18.6 million domains under management as of 30 June 2019.

All Team Internet management and staff will remain with the business following completion, with the three founders being retained on the supervisory board to guide the future growth of the business.

The acquisition is conditional on, amongst other things, Matomy shareholder approval and financing, which CentralNic expects to arrange through issuing additional bonds under its existing senior secured bond, further details of which were announced on 30 September 2019. The bond issue is being underwritten by Macquarie Principal Finance Pty Ltd, UK Branch, on the same terms and conditions as CentralNic’s existing bond issue.

The acquisition is expected to complete in late December 2019. Following completion of the Acquisition, the Company is expected to have net debt of approximately US$76m. This represents a ratio of 2.4x net debt to pro forma Adjusted EBITDA on a trailing pro forma basis. The Directors expect this to reduce to c.2.0x following the first full year of ownership.

Further Financial Information on the Acquisition

Team Internet achieved audited revenues of US$75.6m and Adjusted EBITDA of US$14.2m in the year ended 31 December 2018. Due to an industry-wide policy revision for the long-term health of the online advertising ecosystem in summer 2018, Team Internet generated US$66.7m of revenue (unaudited) and US$10.6m of Adjusted EBITDA (unaudited) in the 12 months to June 2019. As a result of a series of innovations and continuous improvements, Team Internet has returned to growth in Q3 2019 and is expected to do so going forward.

Trading Update

CentralNic’s trading for the third quarter of 2019 was in line with the high end of analyst expectations with unaudited revenues of US$77.1m for the year to 30 September and adjusted EBITDA of US$13.1m for the same period. The acquisitions of TPP Wholesale, Hexonet, and Ideegeo contributed US$5.6m of unaudited revenue and $0.9m of adjusted EBITDA for the two months under CentralNic ownership. The net debt position was US$35.9m, reflecting the issuance of a EUR 50m bond on 3 July 2019.

The Directors are pleased to report the Company continues to trade at the upper end of market forecasts for the year ending 31 December 2019.

The person responsible for arranging the release of this announcement on behalf of CentralNic is Ben Crawford, Chief Executive Officer.