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Stargroup Ltd proposes acquisition of ATM services business

Published: 09:20 29 Sep 2016 AEST

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Stargroup Ltd (ASX:STL) has signed an exclusive memorandum of understanding for the potential acquisition of Indue Limited, a market leading ATM services business.

Stargroup will undertake due diligence, which can lead to the entering into of a binding agreement.

Consideration will be $6.5 million cash fully funded by debt.

Stargroup is looking to purchase Indue’s ATM switching, settlement, processing, telecommunications and reseller business.

The additional projected annualised EBITDA is $1.7 million.

If the acquisition proceeds, an agreement will be signed at the end of October and the acquisition will be completed by the end of December.

Todd Zani, CEO, commented: “I have had a long term relationship with Indue and they provide industry best settlement and processing services and this is an excellent acquisition of a complementary business for Stargroup.”


Background

Stargroup is a dual listed technology company that owns a 350+ ATM network in Australia and provides EFTPOS and payWave technologies.

Stargroup has a 11% interest in NeoICP Korea Inc, the manufacturer of cashPod ATMs, back office and casino settlement solutions.

Stargroup offers two key products - ATMs and EFTPOS terminals. 

The ATM network generated over $500,000 in revenue for each of July and August.


Proposed acquisition details

The memorandum of understanding (MOU) provides that both parties will negotiate the sale transaction on an exclusive basis until 30 October 2016.

The transaction will not become binding on either party until the following material conditions precedent are satisfied:
 
- Stargroup completing due diligence;
- Stargroup and Indue executing a binding asset sale agreement;
 -Stargroup and Indue entering into an agreement which documents the provision of the ongoing
services that Indue will provide to Stargroup on completion of the transaction; and
- Stargroup and Indue obtaining all necessary approvals.

Expected timetable:

- 28 September: Announce MOU (complete);
- 30 October: Complete and announce execution of asset sale agreement;
- 31 November: Obtain necessary shareholder approval; and
- 31 December: Completion of acquisition.


Indue Limited


Indue provides ATM switching, settlement and processing services (ATM Switch), telco services (ATM Telco) and also resells ATMs (ATM Sales) to circa 70 ATM deployers, 1,700 ATMs, 1,350 modems and processes circa 12 million transactions per annum.

The ATM Switch, ATM Telco and ATM Sales business will increase the current annualised revenue from the ATM division to $11.6 million from $7.5 million with that figure increasing via further organic growth to at least $15 million next financial year.


Analysis

If executed, this would be a significant transaction for Stargroup given Indue is a market leader that has been operating for over 45 years.

Stargroup will look to further add value to the customers of Indue post the acquisition and exploit synergies between the two complementary businesses.

The acquisition will further diversify Stargroup’s current business, continuing on from the company’s recent move into the EFTPOS space.

Stargroup has recently advanced its international expansion opportunities with the West International AB EFTPOS deal and the dual listing on the Frankfurt Stock Exchange.

The deal with West International importantly gives Stargroup access to the source code which will make available numerous market opportunities for Stargroup.

Since announcing the deal with West International, the company has received numerous enquiries as the major banks have traditionally kept this code to themselves or limited its access to others.

While Stargroup continues to be the leading independent service operator (ISO) in the Australian ATM industry, its recent agreement with West International provides a valuable opportunity for growth within the EFTPOS industry.

Given less than 1% of Stargroup’s FY16 revenue came from its EFTPOS business and it has less than 1% share in the Australian market, this represents a large growth opportunity for the company.

 

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