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Connexion Media pounces on cyber security and cloud services company

SSG's experience in cyber security, cloud services and IT governance will be valuable.
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Security Shift Group provides earnings profile and additional revenue stream

Connexion Media Ltd’s (ASX:CXZ) proposed acquisition of IT services company, Security Shift Group (SSG) provides it with expertise in areas of cyber security, cloud services and IT governance.

This delivers opportunities to engage in larger scale projects outside its traditional areas of smartcard software apps and services for internet connected vehicles and mobile devices.

The transaction facilitates the acquisition of two cloud platforms designed to Defence Signal Directorate PROTECT level requirements, replacing reliance on external cloud computing services for major projects.

In a unique purchase, Connexion Media has offered a combination of upfront consideration and earn out consideration on a multiple of achieved EBIT basis.

The net asset value on successful completion, including earn out, is $5 million.

Financial benefits include revenue diversification

Connexion has two core products in commercialisation, CXZ Telematics and miRoamer.

CXZ Telematics is a smart car solution that allows fleet vehicle management from a mobile phone or computer.

This provides cost efficiencies through reduced maintenance costs.

Connexion has forged a relationship with General Motors with a view to boosting sales of these products.

However, in fiscal 2017 the company did not meet its internal goals, and as such revenues from SSG, which has different industry exposure should be beneficial.

SSG brings reasonable certainty of earnings

SSG is currently generating annualised earnings before interest and tax (EBIT) of $972,300 per annum.

The company has circa $400,000 in cash on hand, and it is debt free.

Based on SSG’s sales transaction pipeline, Connexion expects underlying annualised earnings to increase to $1.6 million within the next 12 months.

Acquisition to be debt and equity funded

Connexion has offered a combination of an upfront investment of $1.8 million in new shares in SSG, and an earn out consideration on a multiple of achieved EBIT.

It will also involve the payment of $1,194,800 via the issue of new shares in Connexion to the shareholders of SSG at $0.01 per share to acquire all outstanding shares in SSG.

The conditional payment of circa $2 billion via the issue of new shares in Connexion will be on the basis of a predetermined EBIT multiple of 3.08.

A $500,000 debt facility inclusive of interest has been secured to provide near-term financial flexibility.

View full CXZ profile View Profile

Connexion Media Timeline

March 17 2017
February 12 2016

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