It offers software-defined networking, which makes it easier for big companies to traffic large amounts of data over the internet, or connect to data centres, privately and securely without deploying their own hardware.
Console Connect says its point-of-difference is that “Unlike other network-as-a-service platforms, we own the underlying core network infrastructure.”
It says it’s in the top 10 of 16 “Tier 1″ network providers in the world. It bills itself as one of the world’s top three players in the software-defined network market, with “1000+” enterprise customers.
The deal is at a 3.4x revenue multiple for Console Connect’s software-defined interconnection platform, and that it “expected to generate returns consistent with Infratil’s target returns of 15-25 per cent for development assets”, according to an Infratil investor presentation.
Completion of the acquisition is conditional on telecommunication, foreign investment regulatory approvals and merger approvals. Infratil expects it to close in the third quarter of 2024.
In the short term, Infratil says Console Connect will be ebitda-neutral for the first 24 months, then deliver pro-forma ebitda of US$40m to US$50m ($64.68m to $80.85m) in FY2025.
Loss-making to forecast big profits
On a conference call hosted by Infratil CEO Jason Boyes and Robert Huang, an executive director with Infratil’s management firm Morrison & Co, Huang - who ran the deal process - said Console Connect had been “ebitda negative” over the past couple of years, due to sales and marketing expenses.
Asked about the big step up from ebitda neutral over the first two years to up to US$50m ($80.85m) in operating profit in FY2025, Huang said earnings from new cables would deliver the boost.
With the deal not due to close until the third quarter of next year, Infratil would fund the new subsea cables. It would be reimbursed by HKT after the deal closed.
Console Connect will own the new subsea cable systems built as part of the US$295m investment. The firm also has access to some 70 international subsea networks through short and long-term lease operations.
“It’s one of the longest-running deals we’ve ever been involved in,” Boyes said on the call. The process took around two years, due to the complex legal structure, plus in-depth technical due diligence on Console Connect’s software and physical infrastructure, carried out by third parties.
Huang said only a handful of competitors could match Console Connect’s software, which gave a large organisation one console to manage connections with the likes of AWS, Salesforce and Oracle Cloud.
Unlike most providers, Console Connect let customers enter short-term, no-contract arrangements, Huang said. The flip side was that it could charge more per unit for convenience. Huang used the example of a business processing firm in Australia, which added capacity as needed through Console Connect as it opened new call centres. “They only pay for the bandwidth they need.”
Huang said private connections - faster and more secure than the public internet - could be set up in minutes, compared to a lengthy, more expensive process with more traditional providers.
Chinese Govt-owned telco an indirect part-owner
The conference call also saw Infratil asked if HKT’s association with a state-owned Chinese telco could cause complications. Boyes said that issue would be “put to bed” during the regulatory approvals process.
After the call, an Infratil spokesman told the Herald that state-owned China Telecom “is a customer of HKT and has no direct ownership.”
Indirectly, state-owned China Unicom owns approximately 18 per cent of PCCW, which in turn owns 54 per cent of HKT.
In 2021, China Telecom and Unicom delisted from the NYSE after then-President Donald Trump signed an executive order barring Americans from investing in Chinese companies that the US said aided China’s military, intelligence and security services.
In March 2022, the US added China Telecom to a national security threat list. In September 2022, China Unicom was added to the same list.
Expanding tech and telco portfolio
Infratil recently bought the 50 per cent of One NZ (formerly Vodafone NZ) that it did not already own in a $1.8 billion deal, financed by cash, debt and the issue of $850m in new shares, including a $100m retail offer.
Infratil says its Console Connect deal will be funded through “available capital and existing banking facilities”. The firm said it had total available liquidity of around $1 billion as of June 6, following the completion of its move to take full control of One NZ.
The Console Connect deal continues Infratil’s move into ICT, which has also included its half-share in Canberra Data Centres, CDC, recently revalued upwards by a third to $3.1b, making it Infratil’s second-largest asset after One NZ. Infratil’s largest non-ICT asset is its $1.1b stake in Manawa Energy.
$75m bond offer
Infratil is considering a six-year, unsecured fixed rate offer for up to $75m of infrastructure bonds, with an option to accept another $50m in the event of oversubscriptions, the firm said today.
The proceeds “will be used for general corporate purposes, including to repay a portion of Infratil’s existing bank debt bridge facility put in place to fund the acquisition of One New Zealand,” Infratil said in an NZX filing.
The offer is expected to open on July 17 and close on July 23.
Shares closed Friday at $10.15. The stock is up 28.6 per cent over the past 12 months.
Chris Keall is an Auckland-based member of the Herald’s business team. He joined the Herald in 2018 and is the technology editor and a senior business writer.
