iiNet has initiated an acquisition of Australia’s largest privately owned broadband provider, Internode, for $105 million.

The move will see iiNet add approximately 190,000 broadband subscribers to its existing customer base, making it the second largest DSL provider and the third-largest fixed line provider in the nation.

“Internode is an attractive acquisition, consistent with our strategy of building scale in anticipation of the national broadband network market,” iiNet managing director Michael Malone said.

“Internode’s experienced management team and excellent customer satisfaction record will allow iiNet to efficiently grow its presence in the South Australian and Eastern State markets,” Malone said.

Simon Hackett, the managing director of internode, was elated about the acquisition, saying “this is a unique opportunity to increase our presence nationally.”

He continued: “Internode’s track record of consistently topping national ISP customer satisfaction surveys matches iiNet’s own customer focused corporate strategy. The best teams in the business have joined forces at last.”

Internode will trade as a separate entity with Mr Hackett continuing to manage the company.

iiNet is expecting a boost in revenues of $180 million in 2012’s financial year following the purchase. It also follows another acquisition made by iiNet little over a month ago, after the company paid $60 million for Canberra based TransACT, which added roughly 40,000 new subscribers to its customer base.

Funding will occur through the issue of 12 million iiNet shares to Internode founder Hackett, with the remaining balance being paid in cash net of internode’s existing debt. The settlement is expected to be completed by the 29th of February 2012.

Acquisition Highlights

· Acquisition of 190,000 broadband subscribers and 260,000 active services
· Expected pro forma FY12 revenue of approximately $180 million and pro forma FY12 EBITDA of approximately $25 million, prior to synergies
· Synergies available from on-net migration, bandwidth, backhaul, inter-capital transmission and the integration of systems and suppliers
· Synergies expected to contribute incremental EBITDA of $7 million realised within FY13
· $105 million acquisition price represents a 4.2x expected pre-synergies FY12 EBITDA multiple and a 3.3x post-synergies pro forma EBITDA multiple
· Expected to be EPS accretive in FY13 pre-synergies
· 15,000 off-net subscribers expected to be migrated to iiNet’s network
· Very strong brand based in South Australia, with customers in all states and territories
· Experienced management team with deep local relationships
· Compatible network infrastructure, extending iiNet’s DSLAM footprint by over 36 exchanges and requiring only ongoing maintenance capital expenditure
· To be funded through the issue of approximately 12 million iiNet shares to Simon Hackett with the balance to be paid in cash net of Internode’s existing debt, from cash on hand and an extension of iiNet’s current debt facilities.  Simon Hackett has agreed to standstill and tender provisions (see below) for a period of one year
· Comfortable debt profile post acquisition with pro forma net debt balance today of $250 million
· Settlement expected to be complete by 29 February 2012