Here’s why the NEXION (ASX:NNG) share price is lifting today

The NEXION Group Ltd (ASX: NNG) share price is up 6% this morning following news of an acquisition agreement for Blue Sky Telecom.

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The NEXION Group Ltd (ASX: NNG) share price zoomed up 6% in early trade following news the company has completed a new acquisition agreement. The business to business (B2B) cloud and tech company will purchase Blue Sky Telecom, a B2B telecommunications company.

At the time of writing, the NEXION share price has lost some ground and is now trading at 22.5 cents, up 2.2%. Let’s look closer at NEXION’s announcement.

New acquisition

In today’s release, NEXION stated that the acquisition was part of its expansion strategy. It would enable NEXION to supplement its core services while reducing the running costs of Blue Sky’s “to seamlessly connect all its products and services”.

The acquisition has cost NEXION $2 million with additional earn-outs. An earn-out means a business’s seller can get compensation if the business achieves certain objectives after its sale. The $2 million is to be made up of 10 million shares in NEXION, a valuation of 20 cents apiece.

According to today’s release, Blue Sky’s revenue has grown by 20% in the 2020 financial year, with the company making $2.9 million so far this financial year.

NEXION said Blue Sky’s growth was mainly driven by its new enterprise and satellite divisions. It expects the acquisition to be completed in the fourth quarter of the 2021 financial year.

Commentary from management

NEXION co-founder and CEO Paul Glass welcomed the acquisition, saying.

Blue Sky is a fast growing business with an outstanding product offering. As a result, NEXION will be a stronger combination of infrastructure and products that should yield material cross-sell opportunities and the possibility of lower costs.

The terms of the acquisition have been designed to strongly align the vendor with NEXION’s ongoing success and should the terms of performance milestones be met all shareholders can be expected to benefit strongly in coming years as NEXION’s revenue will have grown very significantly.

… It has been a key objective of the company to materially improve the proportion of recurring revenue in NEXION’s revenue mix and this acquisition is a huge step towards this goal.

Blue Sky Telecom’s founder and CEO Daniel Fairbairn said he was committed to continuing Blue Sky’s success and create stronger commercial propositions for its customers.

By bringing these two businesses together under the NEXION Group, the company will be able to leverage and combine their respective in-depth expertise and ability to build commercial solutions that adds real value to our customers.

NEXION share price snapshot

Investors will no doubt welcome some positive news after the NEXION share price made a poor start to its time on the ASX.

The company was listed on the ASX in mid-February this year, and its share price has since fallen by 10%.

NEXION has a market capitalisation of $14 million, with approximately 111 million shares outstanding.

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Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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