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People Infrastructure share price higher on Halcyon Knights acquisition news

In morning trade the People Infrastructure Ltd (ASX: PPE) share price has pushed higher this morning after announcing a major acquisition.

At the time of writing the technology-enabled workforce management company’s shares are up 1% to $2.80.

What was announced?

The morning People Infrastructure announced the acquisition of Halcyon Knights, Halcyon Knights Commercial and Contracting, and Halcyon Knights New Zealand.

According to the release, Halcyon Knights was established in 2007 and is a leading information technology recruitment company focused on the Melbourne, Sydney, New Zealand and Singapore markets.

Its products and services are offered across several IT verticals including Sales & Marketing, Digital, Cloud, Cyber Security, Data & Analytics, Professional Services & Consulting and Technical Support.

It has approximately 55 staff and is one of the most well-regarded IT recruitment and contracting companies in Australia.

The deal.

Management advised that it will pay $13.5 million in cash to acquires the businesses. There is also an earn out of up to $8.25 million payable in People Infrastructure ordinary shares over three tranches based on the Halcyon Knights business achieving agreed EBITDA hurdles for FY 2020, FY 2021 and FY 2022.

People Infrastructure also intends to allocate key Halcyon Knights employees a yet to be determined amount of performance rights that will convert into shares based on the performance of the business in accordance with its performance rights plan.

The consideration will be funded by a combination of existing cash reserves and new debt facilities that have been put in place. The company’s net debt post-acquisition is expected to grow to be approximately $30.5 million.

But management expects the Halcyon Knights businesses to be highly accretive to earnings from next year. The release advises that the acquired businesses are expected to generate $3.9 million in EBITDA and $2.1 million in NPATA (incorporating financing costs) in FY 2020.

People Infrastructure’s managing director, Mr Declan Sherman, spoke very positively about the deal.

He said, “The acquisition of Halcyon Knights is highly complementary to our existing Queensland focused information technology recruitment business. Regionally it provides access to the much larger Melbourne and Sydney markets which generate over 85% of Halcyon Knights’ revenue.”

Adding: “Halcyon Knights also has growing businesses in Singapore and New Zealand. Approximately 85% of the revenue generated by the business is from permanent placements and the other 15% of revenue is from IT contracting roles. People Infrastructure is especially attracted to Halcyon Knights’ strong leadership team both locally and internationally. It views this as important to the continued ongoing success of the business.”

Elsewhere in the tech sector this morning, the Appen Ltd (ASX: APX) share price has rebounded higher after Friday's selloff and the Altium Limited (ASX: ALU) share price has edged lower amid general weakness in the sector.

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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Altium. The Motley Fool Australia owns shares of Appen Ltd. The Motley Fool Australia has recommended People Infrastructure Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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