# CentralNic Group plc update on Team Internet AG acquisition

- Link: https://www.directorstalkinterviews.com/centralnic-group-plc-update-on-team-internet-ag-acquisition/412798231
- Published: 2019-11-18T07:09:24+00:00
- Author: Giles Arbor

**CentralNic Group plc** ([LON: CNIC](https://www.directorstalkinterviews.com/company/centralnic-group-plc/cnic.l))
has repeated the information provided in the announcement released at 17:49 on 15th
November 2019, regarding its signing of a conditional agreement to acquire the entire
share capital of web services provider, Team Internet AG, Germany, while also providing
additional detail on the acquisition.

**Acquisition Highlights**

· Acquisition of leading domain name monetisation services provider, Team Internet

· US$48m total consideration payable, US$45m is cash, to be funded by an underwritten
bond issue

· Expected to be immediately earnings enhancing and significantly accretive in the
financial year ending 31 December 2020 before any synergies

· Acquisition a strong fit for CentralNic’s stated strategy to derive recurring 
revenues from domain related technologies

· Significant opportunities to drive cross selling by expanding both customer base
and product set

· Team Internet generated US$66.7m of revenue (unaudited) and US$10.6m of Adjusted
EBITDA (unaudited) in the 12 months to 30 June 2019

· This acquisition takes the Group to US$198.2m of unaudited pro forma revenue and
US$31.8m of unaudited pro forma EBITDA*

· Net debt expected to be US$76m following completion of the Acquisition. Net debt
to EBITDA is expected to be 2.4x on completion and is expected to reduce to approximately
2x after the first full year of ownership

· The acquisition is expected to complete in the week commencing 23 December 2019,
following the EGM of Matomy Media Group Ltd., the parent company of Team Internet

*Based on the latest available publicly announced financial statements of CentralNic
and the companies acquired after CentralNic’s latest balance sheet date of 30 June
2019

**CentralNic Group Plc Trading Update Highlights**

· Unaudited revenues of US$77.1m and adjusted EBITDA of US$13.1m for the period 
from 1 January to 30 September 2019

· The net debt position was US$35.9m as of 30 September 2019, reflecting the issuance
of a EUR 50m bond on 3 July 2019 and continued strong cash generation

· The Group, prior to any contribution from the acquisition, continues to trade 
in line with the high end of analyst expectations

> **Ben Crawford, CEO of CentralNic Group, said: **
> “The acquisition of Team Internet is a natural extension of CentralNic’s domain
> sales business and a major step in adding domain related web services to CentralNic’s
> service offering. It is another web-based recurring revenue business that will
> be significantly earnings enhancing for the financial year ending 31 December 
> 2020.”

**Introduction**

CentralNic announces that on Friday, 15 November, it signed a conditional agreement
to acquire the entire share capital of web services provider, Team Internet from
Matomy for a total consideration of US$48m subject to customary working capital 
adjustments.

The total consideration of up to US$48m comprises a cash consideration of US$45m,
of which US$3m is deferred, and a share consideration of US$3m payable in Group 
shares. This represents a multiple of 4.5 times Team Internet’s EBITDA on a continuing
basis for the trailing 12 months to 30 June 2019 of US$10.6m. The acquisition is
expected to be immediately earnings enhancing and significantly accretive in the
financial year ending 31 December 2020 on a standalone basis before any integration
or revenue synergies.

Following completion, CentralNic will be one of the world’s leading providers of
domain name monetisation services with a proprietary platform that enables domain
name investors to generate recurring advertising income from their assets.

Team Internet is based in Munich, Germany. Over the ten years since it launched,
it has continuously developed its platform and delivered audited revenues of US$
75.6m and Adjusted EBITDA of US$14.2m in the year ended 31 December 2018, and US
$66.7m of revenue (unaudited) and US$10.6m of Adjusted EBITDA (unaudited) in the
12 months to 30 June 2019.

Team Internet experienced an increase in revenues in the year ended 31 December 
2017 due to the collapse of a competitor. Following a period of rationalisation 
and focus on retaining high quality customers, Team Internet’s revenues have reduced
to levels that are stable and highly recurring in nature. From this revised base,
Team Internet has returned to month on month revenue growth in Q3 2019.

Team Internet’s revenue is highly recurring with approximately 35,000 individual
customers signed to rolling contracts to monetise a total of more than 20 million
domain names using Team Internet’s proprietary technology for matching domain names
with the highest paying advertisers. These contracts earn revenues for Team Internet
on a monthly recurring basis with high levels of retention.

The acquisition will add an additional 40 staff in Germany, shifting CentralNic’s
critical mass with almost 200 engineering and other staff members based there. Team
Internet is an extremely efficient automation-focused company which derives c.US
$1.6m in revenues per staff with CentralNic’s focus being on opportunities to grow
the business through CentralNic’s existing global sales and marketing networks and
by bundling and cross-selling as opposed to cost savings. The Directors believe 
that domain monetisation is a service that could potentially be bundled with an 
estimated 30% of all domain name registrations. This represents a significant opportunity
to the Group as CentralNic currently has 18.6 million domains under management as
of 30 June 2019.

All Team Internet management and staff will remain with the business following completion,
with the three founders being retained on the supervisory board to guide the future
growth of the business.

The acquisition is conditional on, amongst other things, Matomy shareholder approval
and financing, which CentralNic expects to arrange through issuing additional bonds
under its existing senior secured bond, further details of which were announced 
on 30 September 2019. An abort fee of US$1m may become payable by any party that
does not complete the closing conditions. The bond issue is being underwritten by
Macquarie Principal Finance Pty Ltd, UK Branch, on the same terms and conditions
as CentralNic’s existing bond issue.The Directors deem the risk of the abort fee
becoming payable by CentralNic as remote.

The acquisition is expected to complete in the week commencing 23 December 2019,
after the EGM of Matomy. Following completion of the Acquisition, the Company is
expected to have net debt of approximately US$76m. This represents a ratio of 2.4x
net debt to pro forma Adjusted EBITDA on a trailing pro forma basis. The Directors
expect this to reduce to c.2x following the first full year of ownership.

**Further Financial Information on the Acquisition**

Team Internet achieved audited revenues of US$75.6m and Adjusted EBITDA of US$14.2m
in the year ended 31 December 2018. Due to an industry-wide policy revision for 
the long-term health of the online advertising ecosystem in summer 2018, Team Internet
generated US$66.7m of revenue (unaudited) and US$10.6m of Adjusted EBITDA (unaudited)
in the 12 months to June 2019. As a result of a series of innovations and continuous
improvements, Team Internet has returned to growth in Q3 2019 and is expected to
do so going forward.

**Trading Update**

CentralNic’s trading for the third quarter of 2019 was in line with the high end
of analyst expectations with unaudited revenues of US$77.1m for the year to 30 September
and adjusted EBITDA of US$13.1m for the same period. The acquisitions of TPP Wholesale,
Hexonet, and Ideegeo contributed US$5.6m of unaudited revenue and $0.9m of adjusted
EBITDA for the two months under CentralNic ownership. The net debt position was 
US$35.9m, reflecting the issuance of a EUR 50m bond on 3 July 2019.

The Directors are pleased to report the Company continues to trade at the upper 
end of market forecasts for the year ending 31 December 2019.

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