Here's why the Spirit (ASX: ST1) share price is up 5% this morning

The Spirit (ASX: ST1) share price his soaring today after news the telecom company has acquired software company Nextgen.

Brooke Cooper

Brooke has been a Motley Fool contributor since early 2021. She holds a Bachelor of Communication with specialisations in journalism and international studies from Charles Sturt University. Brooke aims to inform and excite Aussies keen to grow their wealth by investing in ASX companies. When not writing or researching, you'll likely find Brooke gallivanting around South East Queensland.

Published March 31, 2021 11:20 am AEDT

The Spirit Technology Solutions Ltd (ASX: ST1) share price is up this morning, after news of the company's biggest acquisition to date. The telecom company has acquired software company Nextgen, saying it expected the acquisition to generate $36 million of revenue.

At the time of writing, the Spirit share price is up 5.7%, trading at 37 cents.

Let's look closer at Spirit's new acquisition.

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward — Image source: Getty Images

Acquisition of Nextgen

Spirit ended a two-day trading halt this morning with news of its latest acquisition.

According to the company's release, its purchase of Nextgen has doubled its business to business (B2B) customer base and brought 100 new salespeople to Spirit. Those salespeople will continue to sell Nextgen products while cross-selling Spirit's internet, cloud, voice, mobiles and cybersecurity products.

To purchase the B2B software company, Spirit conducted a $23.8 million placement to institutional and sophisticated investors. It also lifted its debt facility with the Commonwealth Bank of Australia (ASX: CBA) from $15 million to $25 million.

The acquisition's total cost is capped at $50 million, with $10 million of that to be deferred.

All vendors are to remain with Spirit for at least 18 months (on a performance-based earnout) and will take 30% of the consideration in Spirit shares and 70% in cash. The cash component will be funded from the capital raising and CBA debt facility.

According to Spirit's announcement, Nexgen expects to record $7.2 million to $7.6 million of EBITDA through the 2021 financial year.

The acquisition news comes nearly a fortnight after Spirit announced it would shift its focus to its business market, divesting its consumer infrastructure assets.

Spirt share price snapshot

Today's news may be the boost the Spirit share price needs to dig out of its 2021 ASX slump. It has dropped by 7.5% year to date. However, the Spirit share price is still up by 164.29% over the last 12 months.

Spirt has a market capitalisation of around $191 million, with approximately 547 million shares outstanding.

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