CentralNic has announced the conditional US$36m asset-based acquisition (payable in cash on completion) of one of Team Internet’s closest competitors, Codewise, a domain monetisation business based in Poland. Based on the year to 30 June 2020, the deal values Codewise at 0.60x historical sales (US$60.3m) and 4.9x adjusted EBITDA (US$7.4m). The deal is being funded by way of a share placing, with CentralNic having placed 40m shares (21% of the equity) at 75p per share (a 6% discount to the 10 September closing price), raising gross proceeds of £30m. Assuming a year end completion date, we estimate that the deal will be materially (c 18%) EPS enhancing in FY21. The acquisition is highly complementary to the successful Team Internet acquisition, completed in December 2019, building CentralNic’s technology base and market share in domain monetisation, diversifying its client base and strengthening the group’s development capability and senior management team.
Codewise is a monetisation and digital marketing group, with two principal businesses: Zeropark (an online ad-exchange connecting advertisers with domain investors/publishers) and Voluum (SaaS analytics, measurement, optimisation and media buying). CentralNic is also taking on all of Codewise’s employees (140 staff, based in Krakow, Poland), including its development team to deepen CentralNic’s talent pool. Codewise has similar characteristics to CentralNic, including operating a subscription model, high recurring revenues and near 100% cash conversion. The deal is conditional on completion of a business restructuring (among other conditions) and is not expected to complete until around 31 October 2020.
The total consideration for the acquisition is US$36m (subject to working capital adjustments) on a cash-free, debt-free basis, payable in cash on completion. This represents 4.9x adjusted EBITDA of US$7.4m for the 12 months to 30 June 2020. In parallel with the acquisition, CentralNic has completed a placing of 40m shares (20.8% of existing share capital) at 75p per share (a 6% discount to the prior closing price of 79.75p) to existing and new institutional investors, raising gross proceeds of £30m (c US$39m) to fund the acquisition and associated costs.
We estimate the deal to be materially (18%) EPS enhancing in FY21. Even before the acquisition, CentralNic was trading at a substantial discount to its peers. This transaction further deepens the discount, with an FY21 P/E of 12.5x.
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