Cybersecurity company Tesserent (ASX: TNT) has pulled the trigger in acquiring cloud services provider iQ3 in a part cash and scrip deal worth almost $17.24 million.
The deal means Tesserent will achieve its goal of $100 million in annual turnover, marking an increase of more than 1,000% since the company reshuffled its board in January this year.
Founded in 2010, iQ3 delivers cloud services in multiple cities around Australia, including what’s been described as “infrastructure as a Service (IaaS)”, via private, public and hybrid cloud solutions in industry sectors such as commercial, government and education. The company currently has multiple international brands in Australia and Singapore, with particularly strong ties to NSW state and local governments.
The consideration for the acquisition of iQ3 is a mix of cash and Tesserent shares, being $8.6 million in cash and 34.6 million shares issued at $0.2496 per share ($8.636 million).
The cash component will be funded from existing cash reserves being $4.3 million on completion and four deferred quarterly payments of $1.07 million over 12 months.
iQ3 delivers secure cloud infrastructure and related services to a long list of government agencies including 25 NSW Government departments, both directly out of GovDC and the NSW Government’s official procurement program, ‘buy.nsw’.
In response to the deal, Tesserent said the acquisition “materially complemented” its cyber 360 strategy and represented a “significant step forward” in its ability to provide a full end-to-end cyber service.
“The addition of Secure Cloud Services to our Solution portfolio is a strategic piece to our Cyber 360 offering that takes us one step closer to executing our strategic go-to-market vision,” Tesserent chairman Geoff Lord said.
“We’re extremely pleased to welcome iQ3 into the group, Craig Humphreys, iQ3’s managing director, has proven to be a talented operator. It’s also particularly pleasing to have achieved our $100 million turnover run rate well before December which now gives us a solid base for material future growth,” Mr Lord added.
The rationale behind the acquisition is to improve Tesserent’s existing cyber strategy and will contribute to developing the company’s broader end-to-end cyber offering.
More specifically, by integrating iQ3’s expertise into its operations, Tesserent expects to forge considerable cross-sell and up-sell opportunities at a customer, geographic and solution level. The company said it envisages significant sales opportunities for iQ3 secure cloud services to existing customers, while selling its core services to iQ3 customers in Australia and Singapore.
Tesserent said other notable benefits were associated with iQ3’s ISO-certified network operations centre and its existing security operations centre concerning the delivery of associated cloud, connectivity and new managed security services capabilities. Additionally, it sees an immediate opportunity to leverage state and federal government relationships and capabilities within the company, particularly North, Seer, Ludus and iQ3.
With iQ3’s operating record includes a turnover of more than $25 million last year, and $3 million in EBITDA.
Tesserent anticipates iQ3 would be immediately earnings, cash flow and EPS accretive, with strong revenue and earnings expected to continue into next year.
Importantly, more than 70% of iQ3’s revenue comes from several recurring multi-year annuity-based contracts. Upon completion of the deal, Tesserent will have more than $30 million in annual recurring revenue from multiple locked-in multi-year contracts.
“Joining Tesserent is a natural strategic evolution for iQ3. The delivery of cloud services is becoming more and more security-centric and we now have the ability to significantly grow the business by providing our clients with that end-to-end secure cloud and cybersecurity solution they’re looking for,” iQ3’s managing director Mr Humphreys said.