Sangoma Technologies Corporation (TSX: STC; Nasdaq: SANG)
("Sangoma" or the “Company”), a trusted leader in delivering
cloud-based Communications as a Service solutions for companies of
all sizes, today announced it has acquired NetFortris Corporation
(“NetFortris”). This acquisition further accelerates Sangoma into
the upper echelon of SaaS communications providers and extends our
industry leading suite of cloud services with new MSP capabilities,
thereby delivering even more ‘one stop shopping’ for our customers
and providing larger ‘share of wallet’ for Sangoma.
NetFortris provides UCaaS and cloud-based, fully
managed MSP (managed service provider) solutions for businesses of
all sizes and across all industries. They have approximately 250
employees and four primary offices in Dallas, Seattle, Los Angeles,
and Manila. In addition to NetFortris’ UCaaS offering, their MSP
product line delivers all the mission critical communications
services that customers need to complement their ‘as a Service’
applications, such as managed network security, managed SD-WAN,
managed network access, monitoring, etc. These MSP services are
built upon a highly integrated, end-to-end managed network, backed
up by an expert 24/7 network engineering team. NetFortris has over
6,000 customers in North America, over 60,000 seats, with very low
customer concentration, and generates expected annualized revenue
of just over USD $50 million.
Pursuant to the definitive stock purchase
agreement dated March 28, 2022, Sangoma has acquired NetFortris for
USD $68 million in upfront, fixed consideration (the “Upfront
Consideration”) and up to USD $12 million in an ‘Earn-out’ (the
“Contingent Consideration”), for total consideration of up to USD
$80 million if the Contingent Consideration is fully earned. The
transaction is now closed.
“A critical part of our existing strategy, and
of our competitive differentiation, involves providing customers
with the widest set of cloud communications services in our
industry, avoiding the need for them to buy five different services
from five different vendors,” said Bill Wignall, President and CEO
of Sangoma. “The acquisition of NetFortris further extends that
strategy in such a perfectly natural manner. Not only can customers
already get from Sangoma all the ‘aaS’ products they use today, but
now they will also be able to obtain all the other cloud-based MSP
services they know they need, such as managed network security,
managed access, and managed SD-WAN. This truly is ‘one stop
shopping’ for our customers, and it taps into that very important
new trend that so many of us in the industry see starting to
emerge. I am most excited about this acquisition, our eleventh in
eleven years, because it demonstrates our innovative, unique,
forward-looking vision and it continues to push Sangoma ahead in
the market, further differentiating us from the competition.”
Strategic and Financial Rationale
- There is growing awareness
that customers will prefer to get more and more of their
communications services from one vendor. Not only over-the-top
“aaS” cloud communication apps (UCaaS, CCaaS, TaaS, VMaaS, CPaaS,
Collaboration, etc.), but also the network
security/connectivity/redundancy/monitoring/etc. they know they
need: not only does this transaction satisfy that growing
trend, but it does so in a way which is a perfectly natural fit
with our existing strategy of offering ‘one stop shopping’, by
simply extending our industry leading suite of ‘aaS’ products, with
this new set of complementary MSP services.See what a leading
industry analyst has to say about this trend:“Our research
continues to show that customers want one vendor to go to for their
cloud communications and collaboration requirements, and many
organizations also prefer to purchase additional services – e.g.,
cybersecurity, broadband, etc. – from their UCaaS providers. With
the addition of NetFortris, Sangoma’s approach will resonate
extremely well with customers of all sizes,” said Elka Popova, VP
of Connected Work Research, at Frost & Sullivan.In addition to
our end customers, some of Sangoma’s existing channel partners are
also in the MSP business already, and this will give us the
opportunity to meet more of their need for such products and
services as well.
- Very Strong Recurring
Revenue: NetFortris generates over 90% of its revenue in
MRR, which will bring Sangoma closer to 75% (pro-forma) of our
revenue in Services.
- Increases Scale and
Position in Cloud Communications: an additional 60,000
seats and over USD $50 million in expected annualized revenue will
help maintain Sangoma’s position in the top-tier of a consolidating
market.
- Compelling
Valuation: acquiring an ‘at-scale’ cloud communications
company at approximately 1.3x revenue.
- Diversified Customer Base
with a Familiar Channel Model: a customer base of over
6,000 clients with minimal concentration, an average customer life
approaching seven years, and a channel structure that is very
similar to what Sangoma uses today, make for sticky clients.
- Opens Up New Potential
M&A Opportunities: new possible acquisition targets in
this category of MSPs, to complement those in the UCaaS space.
- Meaningful OPEX
Synergies: opportunities have been identified for expected
annual cost savings starting in the first six months.
- Strong Management and
Operating Talent: deep skills and experience are very
valuable during these times of intense competition for talent.
Transaction Details
This transaction involved a purchase by Sangoma
of 100% of the outstanding equity in NetFortris.
The Upfront Consideration of USD $68 million was
satisfied through a combination of cash and Sangoma common shares.
The upfront cash amount was USD $48.8 million and the upfront
equity amount was USD $19.2 million. Based upon the fixed, upfront
portion of the purchase price, the implied valuation is
approximately 1.3x expected annualized revenue.
The cash portion of the Upfront Consideration
was funded through a combination of cash on hand and, to minimize
dilution, an amended credit facility with its existing lenders.
Sangoma will have approximately USD $110 million of debt on a
pro-forma basis, equating to approximately 2.3x pro-forma net debt
to Adjusted EBITDA1. The equity portion of the Upfront
Consideration was satisfied by issuing approximately 1.5 million
common shares of Sangoma, and such number of common shares issued
was based on the fifteen (15)-day volume weighted average price of
Sangoma’s common shares as of March 25, 2022.
The Contingent Consideration shall be based on
the achievement of certain business performance metrics and, to the
extent earned, be paid in cash after 12 months from the date of
closing.
Advisors
INFOR Financial Inc. is serving as financial
advisor to Sangoma and Norton Rose Fulbright US LLP and Norton Rose
Fulbright Canada LLP are acting as U.S. and Canadian legal counsel
to Sangoma. Q Advisors LLC is serving as financial advisor to
NetFortris and Dentons LLP are acting as U.S. and Canadian legal
counsel to NetFortris.
Conference Call Details
Sangoma will discuss this acquisition more fully
on a conference call on Tuesday, March 29, 2022, at 8:30am EST. The
dial-in number for the call is 1-800-319-4610 (International
1-604-638-5340). Participants are requested to dial in 5 to 10
minutes before the scheduled start time and ask to join the Sangoma
call.
1Adjusted EBITDA is a non-IFRS metric used by
the Company to monitor its performance and the definition of this
term may be found in the most recently filed MD&A posted at
www.sedar.com. Net debt is a non-IFRS metric defined as the
principal balance outstanding under the Company’s credit facilities
less cash on hand.
About Sangoma Technologies Corporation
Sangoma Technologies is a trusted leader in
delivering value-based Communications as a Service (CaaS) solutions
for businesses of all sizes. Sangoma's cloud-based Services include
Unified Communication (UCaaS) business communications, Contact
Center as a Service (CCaaS), Video Meetings as a Service (MaaS),
Collaboration as a Service (Collab aaS), Communications Platform as
a Service (CPaaS), Trunking as a Service (TaaS), Fax as a Service
(FaaS), Device as a Service (DaaS), and Access Control as a Service
(ACaaS). In addition, Sangoma offers a full line of communications
Products, including premise-based UC systems, a full line of desk
phones and headsets, and a complete connectivity suite
(gateways/SBCs/telephony cards). Sangoma's products and services
are used in leading UC, PBX, IVR, contact center, carrier networks,
office productivity, and data communication applications worldwide.
Sangoma is also the primary developer and sponsor of Asterisk and
FreePBX, the world's two most widely used open-source communication
software projects.
Sangoma Technologies Corporation is publicly
traded on the Toronto Stock Exchange (TSX: STC) and Nasdaq (Nasdaq:
SANG). Additional information on Sangoma can be found at:
www.sangoma.com.
Cautionary Statement Regarding Forward Looking
Statements
This press release may contain “forward-looking
information” and “forward-looking statements” (collectively,
“forward-looking statements”) within the meaning of applicable
securities laws, including, without limitation, statements
regarding annual revenue of NetFortris, pro form net debt and
Adjusted EBITDA and the impact that the acquisition of NetFortris
is expected to have on the Company, such as the annualized revenue
of NetFortris bringing Sangoma closer to 75% (pro forma) of its
revenue in Services.
Forward-looking statements are neither
historical facts nor assurances of future performances. Although
Sangoma believes that its expectations reflected in these
forward-looking statements are reasonable, by their nature,
forward-looking statements involve numerous assumptions, known and
unknown risks and uncertainties, both general and specific, that
contribute to the possibility that the predictions, forecasts,
projections and other events contemplated by the forward-looking
statements will not occur. Such assumptions include, but are not
limited to, the business of NetFortris continuing to perform at the
same historical level, there being no material adverse changes to
NetFortris’ customer base or number of seats and such number of
seats continuing to be at least 60,000, NetFortris’ MRR remaining
consistent at over 90%, and Sangoma being able to achieve
post-closing synergies such as the ability to cross-sell
Sangoma/NetFortris products to the other’s customer base and the
amalgamation of data centers. Forward-looking statements are based
on the opinions and estimates of management at the date that the
statements are made and are subject to a variety of risks and
uncertainties and other factors that could cause actual events or
results to differ materially from those projected in
forward-looking statements. Such factors, risks and uncertainties
include, but are not limited to, risks that the acquired business
will not perform as expected, the Company will not be able to
successfully integrate the acquired business and those factors
discussed in greater detail under the “Risk Factors” section in our
Annual Information Form and our most recent Management Discussion
& Analysis (each available under our profile on SEDAR at
www.sedar.com).
Readers are cautioned not to place undue
reliance on forward-looking statements, as there can be no
assurance that the plans, intentions or expectations upon which
they are based will occur. The forward-looking information
contained in this press release represents our expectations as of
the date specified herein and are subject to change after such
date. However, Sangoma undertakes no obligation to update
forward-looking statements if circumstances or management’s
estimates or opinions should change except as required by
law. The forward-looking statements contained in this press
release are expressly qualified by the foregoing cautionary
statements.
Sangoma Technologies Corporation
Larry Stock
Chief Corporate Officer
(256) 428-6285
lstock@sangoma.com
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