Domain name services provider CentralNic (LON: CNIC) has improved its quality of revenues through recent acquisitions and the latest purchase will widen the range of products and services that can be offered to customers. The deal is also earnings enhancing.
Team Internet is being acquired from Matomy Media, which is short of cash and that might explain the attractive purchase price of $48m, predominantly in cash but including some shares.
Munich-based Team Internet (www.teaminternet.com) provides services that enable the owners of domains to generate revenues and a platform that enables them to buy and sell traffic.
This $48m cash and shares purchase will be funded by a bond issue. A €50m bond that matures in July 2023 has been issued and is traded in Frankfurt. The coupon is 7% plus EURIBOR and there is an option to issue a further €40m of bonds, which is sufficient for the cash requirement. The bond issue would increase net debt to $76m.
CentralNic is an international consolidator of the internet domain registry sector. Last year, Germany-based KeyDrive reversed into CentralNic and this year it has already acquired TPP Wholesale, a business covering Australasia, Hexonet, which has operations in Canada and Germany, and domain name retailer Ideegeo Group, which is one of the largest customers of Hexonet.
The company’s direct customers are the retailers of domain names and CentralNic also has retail operations of its own. The company is moving into added value services, but this is still a relatively small part of the business. Team Internet will make it a more significant part of the business.
Part of the business involves the right to distribute a range of internet domains. More recently, .baby, .monster and .bond have been added to the group’s distribution activities. There is also a technical services agreement with .bh in Bahrain and with other country code owners.
In the year to June 2019, Team Internet generated revenues of $66.7m and EBITDA of $10.6m.
In the nine months to September 2019, CentralNic made EBITDA of $13.1m on revenues of $77.1m, although not all businesses contributed in the whole period.
A pre-tax profit of $16.9m is forecast for 2019, rising to $23m in 2020 – prior to the latest deal. The deal should increase pro forma group EBITDA to $31.8m.
The shares are trading on eight times prospective 2019 earnings and if everything goes to plan that will fall further in 2020. There is even a possibility of a dividend next year.
The business is cash generative and whether a dividend is paid may depend on how quickly management wants to reduce borrowings.
CentralNic was already undervalued prior to the Team Internet acquisition and that is even more true after the purchase goes through.