ASX-listed MOQ Limited (ASX: MOQ) has executed a binding agreement to acquire 100 per cent of the shares in Wardy IT Solutions Pty Limited in an upfront consideration of $7.5 million in cash and shares and a potential additional deferred earn-out of up to $6.0 million.
Wardy IT is a market leading provider of Microsoft specialist services and solutions in data platforms and data analytics and multi award-winning Australian Microsoft Gold partner.
This acquisition provides MOQ with a complementary business specialising in data platforms and data analytics of high value services and a platform to accelerate growth within the combined Digital Services practice.
MOQ CEO, Joe D’Addio, said “The acquisition of Wardy IT is an excellent strategic fit for MOQ and aligns with our vision to develop, build and acquire cloud-centric complementary technology businesses.
“We are pleased to welcome the Wardy IT team and their market-leading expertise in data architecture, data optimisation and data management capabilities on the Microsoft platform. These capabilities are a real point of difference for MOQ and, as a result, our customers should benefit from our strengthened resources in an area that is central to their digital transformation efforts.
MOQ will have an increased geographic footprint with Wardy IT offices in four key locations and more than 60 personnel across Australia and New Zealand to be added to MOQ’s 250 current employees. Wardy IT founder and Managing Director, Peter Ward, will join the MOQ leaders ship team in the position of General Manager – Data Analytics. Wardy IT vendors will become significant shareholders, holding a combined 9.1 per cent of the undiluted issued share capital of MOQ.
Wardy IT founder and Managing Director, Peter Ward said, “Wardy IT has actively partnered with the MOQ team on a number of projects over the last five years and we are all excited by the opportunity to become part of the MOQ business. We anticipate being able to significantly strengthen our cloud practice and grow the combined Data Platform and Data Analytics segment, while continuing to deliver the high quality of service to which our clients are accustomed.”
Direct access to over 300 repeat Wardy IT customers across a variety of sectors and with limited client overlap will provide increased critical mass and enhanced quality of recurring revenue services within MOQ’s Applications, Data and Analytics business.
Microsoft Australia Managing Director Steven Worrall said “We look forward to extending our relationship with MOQ through the acquisition of Wardy IT. We have had a long and mutually beneficial partnership with Wardy IT – they have three Gold level partnerships in Data Platforms, Data Analytics and Cloud Platforms and an exceptional reputation. The combined expertise of the two companies will be of great value to small and medium sized businesses that rely on Microsoft solutions to run their operations efficiently and effectively.”
“Wardy IT has a solid existing revenue stream, which features an almost equal blend of specialist professional services, and high-value recurring services and it is anticipated that these services will be leveraged to provide sustainable growth for MOQ in the coming years,” added Mr D’Addio.
The transaction is immediately earnings per share (eps) accretive for MOQ shareholders. Wardy IT has unaudited FY19 revenue of $14.2 million and normalised EBIT of $1.5 million.
The upfront purchase price of $7.5 million payable in $2.5 million cash and $5.0 million in MOQ shares. MOQ shares will be issued from existing capacity at the higher of 27.5 cents per share (cps) and the 20-day volume weighted average price (VWAP) prior to completion, which is expected to be on or around 30 August 2019.
Upfront cash consideration will be funded internally through MOQ’s cash reserves.
An earn-out may become payable by October 2020 in relation to Wardy IT’s financial results for the 12-month period ending 31 August 2020 and subject to achieving certain performance criteria. The earn-out is calculated as 5.0x normalised EBIT during the Earn-out Period less the total upfront consideration (of $7.5 million) already paid. The earn-out is capped at a maximum of $6.0 million.
Under the upfront share consideration, the vendors’ shareholdings will be escrowed 50 per cent for one year and 50 per cent for two years from completion, while any shares issued under the earn-out will be escrowed for one year from the time of issue. These voluntary escrow undertakings ensure a close alignment of interests with MOQ’s future success.
