After highlighting the Vaughan Bowen and Michael Simmons lead Uniti Corporation and the several bolt on acquisitions from early-2019 (and then seeing the takeover from Morrison & Co at $4.50 per share a few years later), it appears the team at Aussie Broadband (ASX:ABB), led by Phil Britt, are following a similar run sheet by taking market share from the incumbents via organic growth and roll-up acquisitions. 

Hot on the heels of completing the Symbio (ASX:SYM) acquisition for $259 million (of which $195 million is to be settled with cash), Aussie Broadband has acquired 20 per cent of Superloop (ASX:SLC) for $93 million cash and announced a bid for the remainder of the company at 0.21 Aussie Broadband shares for every 1 Superloop share (valuing Superloop at $461 million). This is a 33 per cent premium to the SLC three-month volume weighted average price (VWAP) of $0.71. If successful, Aussie Broadband would end up with 375 million shares on issue, and at the prevailing $4.53 per share, its market capitalisation would be $1.7 billion.  

Both Aussie Broadband and Superloop reported their results for the 6 months to December 2023, so we can assess what a potential takeover may look like on a theoretical twelve-month basis, if successful. 

(1). Excludes any synergistic benefits 

Based on the Aussie Broadband balance sheet on 31 December 2023, plus the $19 5 million cash payment for the Symbio acquisition, plus the $93 million cash payment for the 20 per cent of Superloop, I expect the theoretical net debt of MergeCo to approximate $250 million. Hence, an enterprise value, if the transaction is successfully completed, of $1.95 billion, and this implies an enterprise value to earnings before interest, tax, depreciation and amortisation (EBITDA) ratio (at the $4.53 per Aussie Broadband share), excluding any synergistic benefits, of around 10.0X. 

The big question is to what degree can MergeCo grow its underlying broadband retail market share from the estimated theoretical 13.8 per cent? Pleasingly, both Aussie Broadband and Superloop recorded growth of 21 per cent and 38 per cent, respectively, in the six months to December 2023 on the previous corresponding period. Taking market share from the incumbents is the plan.   

For example, a targeted 20 per cent market share, up from the current theoretical 13.8 per cent, would see an additional 575,000 retail broadband subscribers (versus the current 1,270,000), presumably at much higher EBITDA margins than the current theoretical 13.8 per cent. And this is what shareholders in Aussie Broadband and Superloop could be playing for! 

The Montgomery Small Companies Fund owns shares in Aussie Broadband, Symbio and Superloop. This blog was prepared 26 February 2024 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade Aussie Broadband, Symbio and Superloop, you should seek financial advice.