Why the Vonex (ASX:VN8) share price surged 10%

Shares in the telecommunications company have jumped with its latest purchase.

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The Vonex Ltd (ASX: VN8) share price went flying today. At the close of trade, shares in the telecommunications company were selling for 16 cents each – up 10.35%.

The substantial price movement comes after the company announced a new acquisition.

Let’s take a closer look at today’s news.

The Vonex share price is rising

In a statement to the ASX, Vonex says it has agreed with MNF Group Ltd (ASX: MNF) to purchase part of its Direct Business for $31 million.

According to Vonex, the Direct Business “sells cloud phone, internet and mobile services directly to small and medium enterprises [SMEs] and residential customers in Australia, as well as [having] a dedicated audio and video conferencing business.”

In 2020, Direct’s revenue was $15.6 million – 89% of which came from its business customers. Direct’s earnings before interest, taxes, depreciation, and amortisation was $5 million in 2020.

Vonex says the transaction will “materially” expand its presence with Australia’s SMEs and retail customers. The company claims it will acquire just over 5,200 business customers through the transaction. It also says today’s purchase will allow it to expand its presence in Melbourne.

Vonex will pay $20 million upfront to MNF while the remaining $11 million will be deferred and payable in 12 monthly instalments after completion of the deal. Vonex expects the deal to be finalised at the end of next month.

The business will enter into a new debt facility to meet the upfront payment then expects future revenue, with some debt and/or capital raising, to pay the instalments.

As well as the jump in the Vonex share price, MNF Group shares have also been buoyed by today’s news. They’ve closed the day 7.58% higher at $5.33.

Management commentary

Vonex Managing Director Matt Fahey said:

We would be delighted to welcome MNF’s Direct Business and its customers to the Vonex group. As the new ‘work from home’ paradigm has become part of life for more Australians, we have increasingly focused on providing Australian SMEs with telco services that are reliable, affordable, flexible and scalable.

Migrating and integrating the Direct Business with our own will bring us a meaningful national footprint and help us to gain the scale through which we can continue to deliver strong value to customers and investors.

MNF Group CEO Rene Sugo added:

The divestment of these direct businesses is in line with our strategy to simplify MNF’s business and drive growth in Communications Platform as a Service (CPaas) and Unified Communications as a Service (UCaaS) services. Importantly, funds from the sale will be reinvested into our growing wholesale business and our expansion offshore. Assuming all conditions are met, we expect the sale to be completed by the end of July 2021.

Vonex has been a long-term partner to MNF Group, and we have been very impressed with their technical capability and detailed migration plan. This was a significant factor in our decision to select Vonex to acquire the Direct Business.

Vonex share price snapshot

Over the past 12 months, the Vonex share price has increased by 52.4%. Since reaching its all-time high of 32.5 cents a share in February, the company’s value has fallen 50%.

Vonex has a market capitalisation of $30.9 million.

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The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended MNF Group Limited. The Motley Fool Australia owns shares of and has recommended MNF Group Limited. 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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