SpiriTel Acquires Edge Solutions

SpiriTel plc, the business communications service provider, has announced the issue of up to £10 million loan notes and the acquisition of Edge Solutions Ltd for an initial consideration of £3.6 million. The new funds will be used to allow the Company to continue its successful acquisition strategy as a consolidator of the highly fragmented telecoms reseller sector.

The fundraise, led by SpiriTel’s largest shareholder Penta Capital, includes participation by Synergy Capital and Toscafund. The loan note issue is expected to raise a total of £10 million, of which £9.2 million has already been subscribed. The loan notes are convertible at 40p per ordinary share with a 10 per cent yield and are repayable at the Company’s option, no later than November 2014, with a 20 per cent redemption premium.

Edge is based in London and is a provider of voice and data services to almost 200 corporate customers, which include Guoman Thistle, Boden and several blue chip financial institutions. The acquisition increases SpiriTel’s customer base to approximately 2,500 businesses. Edge’s client base delivers a market leading average customer spend of over £2,000 per month, with an annual churn rate of less than 2 per cent. It is anticipated that the high quality customer base will present significant cross selling opportunities for SpiriTel.

Edge is SpiriTel’s seventh acquisition in three years. The transaction is expected to be immediately earnings enhancing and as with SpiriTel’s previous acquisitions, will be swiftly integrated into SpiriTel’s Business Division, providing operational cost synergies. The majority of SpiriTel’s revenues are now recurring in nature under long term contracts, providing an increased level of earnings visibility to the Group.

Under the terms of the acquisition, SpiriTel has agreed to pay £3.6 million in cash on completion. Performance related earn-out payments of up to £5.7 million may also payable in cash by January 2011. Based on the current performance of Edge, the Directors estimate that the additional consideration payable would be approximately £1.2 million. In the financial year ending April 2009, Edge reported revenues of £5.5 million, EBITDA of £0.7 million and profit before tax of £0.6 million. Edge is currently trading at a level of profitability significantly ahead of this and as at 30 April 2009, had net assets of £0.4 million.

Ronnie Smith, Chief Financial Officer of SpiriTel, said of the fundraising, “We are delighted to have raised substantial funds from some high quality, experienced investors who understand our sector and the SpiriTel consolidation model. Their commitment is an endorsement of both our strategy and the strength of our management team. We welcome our new investors and look forward to further expanding the Group for the benefit of our stakeholders.”

Commenting on the acquisition, Alastair Mills, Chief Executive of SpiriTel said: “The acquisition of Edge represents a significant step in our ‘Acquire, Integrate and Grow’ strategy.

We have a track record in successful acquisition and integration and the delivery of organic growth from cross selling our converged product portfolio. We are delighted to be adding

Edge to the Group and as our largest acquisition to date with a first class customer list, the deal will have a significant impact on future earnings.”

He added: “I am also delighted that Steve Burgess is joining the SpiriTel team to head up our Networks line of business, the largest within the Group”.

Steve Burgess, Managing Director of Edge Solutions said: “This is a very exciting development for Edge staff and customers. SpiriTel is recognised as a leading provider of integrated communications services for business customers and we are looking forward to building on Edge’s recent success alongside such a well established and respected B2B service provider. We are confident of contributing to the ongoing success of SpiriTel.”