5G Networks expands capacity via acquisition of data centre in Sydney

Next-gen telecoms company 5G Networks (ASX: 5GN) unveiled an operational boost early this morning by acquiring Sydney-based Australian Pacific Data Centres (APDC) for $3.5 million in cash.

The deal supplements April’s acquisition of a data centre in Melbourne, indicating an incremental service-expansive strategy being enacted by the company.

According to 5G Networks managing director Joe Demase, the acquisition represents the long-awaited beginning of “the next chapter” for the company’s operations and service offerings.

Upon announcement of the deal, 5G Networks declared that the move would boost its EBITDA multiple by over 7 times including the addition of annualised contracted revenue to the tune of $1.7 million per year.

The acquisition is set to unlock cost synergies with expected benefits of around $500,000 of annualised savings starting in the second half of the 2020 financial year.

5G Networks currently owns and operates its own nationwide high-speed data network with points of presence in all major Australian capital cities and serves over 2,500 customers including several top 50 ASX-listed companies and government organisations.

Courtesy of the acquisition, the up-and-coming telecoms company expects to deliver immediate synergies including infrastructure investment that is expected to unlock opportunities for continued revenue growth, cost savings, as well as operational synergies.

Overall, the deal fits into the company’s stated acquisition and growth strategy, the company said.

“This is a valuable acquisition as typically facilities like APDC are not available; this purchase successfully executes on our infrastructure plans and we now have a clear understanding of what the next chapter looks like,” said Mr Demase.

“Importantly, our focus remains committed to profitable growth and fully optimising our infrastructure assets, as we continue to explore strategic acquisitions,” he added.

Infrastructural expansion

APDC currently wields over 150 data centre racks which help to lift 5G Network’s data centre capacity to over 600 racks while being connected to a secure, national high-speed network.

The acquisition will also allow 5G Networks to execute its wholesale channel strategy for data centre services and introduce its fibre network and cloud services to other carriers, hardware vendors and managed service providers.

From a commercial perspective, 5G Networks could potentially reel in a significant portion of Sydney’s CBD-located wholesale and direct clientele through the provision of fast and convenient access to an ISO-accredited, Tier 3 designed facility, and thereby, offer access to mission-critical digital infrastructure within minutes.

To ensure 5G Networks acquires APDC’s assets as part of a smooth transition, 5G Networks said that it will take receipt of APDC’s existing facility including its operating lease and purchasing its asset infrastructure which will ensure continuity for existing customers.

The APDC facility has been purpose-built to Tier 3 standards with power, cooling, redundancy and carrier-grade diverse network access. The data centre has been operating for 15 years, has “N+1 redundancy” and sports “automated management systems.”

The takeover allows 5G Networks to extend its “cross and upsell strategy” and further extends the rapid expansion of its data centre services.

More specifically, 5G Networks wants to accelerate the rollout of its “5GN Cloud Port” offering which packages the features of seamless cloud access in addition to connectivity into all relevant data centres in Australia.

“This innovative networking capability will simplify and speed the design, delivery and management of mission-critical high-speed data services for customers,” the company said.

Future services

Other services already in 5G Network’s pipeline, as a result of APDC’s existing capacity, will include fibre network access for inner metro areas of Sydney and offering “dark fibre” connections to its larger corporate customers and wholesale partners.

Dark fibre refers to unused fibre-optic cabling, whereby companies lay additional lines that are originally surplus to requirements, but with the longer-term aim of curbing the cost of repeated cable installations.

The “dark strands” that are organically unused can then be leased to individuals or other companies that want to establish optical connections among their own locations.

Furthermore, acquiring APDC will also benefit customers across Australia, not just Sydney.

“We can now offer dedicated and secure access from our connected data centres all the way through to cloud and managed network services in Sydney, Melbourne and Adelaide,” Mr Demase explained.

“The new data centre provides a great opportunity for us to grow our share in Australia’s largest ICT market and represents a significant driver to kick start our new indirect channel strategy”, he said.