Vocus & Amcom: Together at Last
It almost didn’t happen, but last month Amcom Telecommunications Limited (ASX: AMM) received approval from its shareholders to merge with Vocus Communications Limited (ASX: VOC), creating a $1.2 billion telecommunications giant.
Vocus has had a stellar run over the past several years as the market grew more familiar with its story. In short, the firm provides the backbone of telecommunications networks on a wholesale basis. Examples include leases on international submarine cables, fibre internet connections and data centre storage (with cloud capabilities) amongst other services.
Amcom provides a similar suite of products, minus submarine cable capacity, but with a stronger focus on engineering customised networks. This means ensuring that the phone, email and data centres can all work with and talk to each other – a field known as Unified Communications.
Naturally, these assets are expensive to create and offer initially dismal returns on capital, yet over time the returns improve as scale is achieved.
The combination of the two firms creates opportunities for cross sale, internet services to Amcom’s customers and unified communications services to Vocus’. The deal also positions the merged company as a viable alternative for corporate customers whom would normally subscribe to Telstra or Optus. The space the firm operates in has plenty of scale for growth, with a market size of more than $3 billion relative to the combined revenues of the merged company of about $320 million.
At current prices, the merged entity appears slightly expensive relative to our valuation. It’s important to note that we regularly review the prospects for these firms and we may change our valuation substantially in future.
Scott Shuttleworth is an analyst at Montgomery Investment Management. To invest with Montgomery, find out more.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
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