Mobile platform and services provider Syntonic (ASX: SYT) emerged from a trading halt this morning announcing the acquisition of a high-flying mobile commerce business unit belonging to leading Brazilian service provider, Zenvia Mobile Servicos Digitais.
The proposed acquisition includes Zenvia’s core technology platform, operational assets, the assignment of all contracts for a cash consideration of US$700,000 (A$940,000) and a vendor earn-out of 20% of the first US$21.5 million (A$28.9 million) of contribution margin generated by the acquired assets over 3.5 years.
Zenvia’s core asset is its mobile commerce business unit which enables consumers to make online purchases using the stored mobile credit in their carrier account, known as direct carrier billing. It is estimated that by 2019, total global carrier billing revenue will be worth more than US$24 billion globally, with US$1.2 billion coming from Latin America.
South American market potential
Zenvia’s mobile commerce business has an established market presence, uniquely differentiated with its platform integrated into all major Brazilian mobile operators and with ongoing contractual relationships with many of Brazil’s major content providers.
As it stands, the platform has an addressable audience of 235.7 million mobile subscribers which Syntonic will hope to bite into post-acquisition.
Last year, Zenvia generated gross revenue of R$36.10 million (A$13.95 million) and recorded an EBITDA of R$2.27 million (A$0.89 million).
Subject to execution of formal agreements, Syntonic proposes to operate Zenvia’s platform as a standalone business and as a value-added service integrated with Syntonic’s Connected Services Platform (CSP).
“The proposed acquisition of Zenvia’s mobile commerce business unit represents an exciting strategic development for Syntonic. The business is well established and generating revenues through its operator and content partnerships. The respective business and technical assets complement each other and allow us to enhance the Freeway value proposition for consumers, operators, and content providers, and to capture new revenue opportunities,” said Gary Greenbaum, managing director and CEO of Syntonic.
Reasoning behind acquisition
The rationale for the acquisition is based on three prime reasons.
Firstly, Zenvia’s platform will enhance the value proposition of Syntonic’s products by blending Syntonic’s CSP with Zenvia’s mobile platform, thereby providing a “full-feature mobile advertising platform” for cost-efficient customer acquisition, engagement, and monetisation.
Syntonic is confident that the integrated platform will provide additional value to the mobile operator with new revenue streams generated by mobile commerce and mobile advertising.
Furthermore, the deal is expected to accelerate revenue growth given that Zenvia has established revenue and recurring revenue streams from major content providers.
Last but not least, the deal is expected to insert Syntonic into new markets for future growth and expand its business presence in Brazil, currently the world’s 9th largest economy with over 235.7 million mobile users.
“Following completion of the proposed acquisition, Syntonic will be the only company with a mobile commerce platform integrated with all of Brazil’s major operators and partnerships with major content providers using the platform service,” said Mr Greenbaum.
Today’s news helped Syntonic shares reach $0.014 per share, up 17% in afternoon trade.