Sinch AB (publ)

Sinch to acquire SAP Digital Interconnect to grow global cloud communications capabilities - Seite 2

Financials and synergies

For the twelve months ended March 31, 2020, SDI recorded revenues of EUR 340 million, Gross Profit of EUR 94 million, and adjusted EBITDA of EUR 15.4 million. The business employs ca. 330 people in 20 countries and is headquartered in San Ramon, California.

In the twelve months ended March 31, 2020, Programmable Communications accounted for 67 percent of SDI revenues, with Carrier Messaging contributing 28 percent and Enterprise Solutions contributing 5 percent. Year-on-year revenue growth over the past two years has been around 10 percent.

On a preliminary basis, net cost synergies from various sources of the combination of Sinch and SDI are expected to reach EUR 11 million, reaching full run-rate in the fiscal year 2022. One-off carve-out and integration costs of EUR 6-8 million are expected over the same period.

Valuation

The transaction values the acquired business at an EV/EBITDA multiple of 14.6x, or 8.5x including estimated synergies at full run-rate.

Financing

The acquisition is financed using Sinch’s cash at hand and available credit facilities.

Sinch has a financial target to maintain net debt/adjusted EBITDA below 2.5x over time. As of Q1 2020, net debt/adjusted EBITDA was -1.0x when measured on a rolling, twelve-month basis. On a pro forma basis, which includes Adjusted EBITDA in acquired entities over the past 12 months, net debt/adjusted EBITDA was -0.9x. The acquisition of Chatlayer, which was closed on April 1, affects this ratio by 0.1x so that pro forma net debt/adjusted EBITDA is approximately -0.8x.

If the acquisition of SDI had already been completed, pro forma net debt/adjusted EBITDA would have been 2.2x. Moreover, the recently announced acquisition of Wavy is awaiting regulatory approval, and is expected to close in H2 2020. Had the acquisition of Wavy also been completed, pro forma net debt/adjusted EBITDA would have been 2.7x.

Regulatory approval

Closing of the transaction is subject to customary closing conditions, including regulatory approval from competition authorities in multiple jurisdictions.

Timelines and conditions

The transaction is expected to close in H2 2020. Sinch has agreed to pay SAP a termination fee of EUR 11 million if the transaction is not completed and certain conditions are met.

Advisors

Handelsbanken Capital Markets is acting as financial advisor and K&L Gates LLP as legal advisor to Sinch in the transaction.

Conference call and webcast