Sydney private equity firm Mercury Capital is to make a strong exit from its investment in SMS messaging business MessageMedia with the $US1.3 billion ($1.7 billion) acquisition of the business by Swedish listed company Sinch AB (XSTO: SINCH).
The definitive agreement reinforces high valuations placed on Australian technology companies other by recent offers.
The transaction gives Melbourne-based Message Media (Message4U Pty Ltd) an enterprise value to gross profit multiple of 13.8x and an enterprise value to EBITDA multiple of 25.4x based on anticipated earnings for the 2020-21 financial year.
Mercury and other MessageMedia stakeholders will share $1.1 billion in cash and 1,128,487 billion new issue shares in Sinch with the shares to be escrowed for six months after the deal closes.
The deal is subject to regulatory approval from the Foreign Investment Review Board (FIRB), the Australian Competition and Consumer Commission (ACCC) and US competition authorities.
Announcing the planned deal on 9 June, Stockholm-based Sinch said MessageMedia was a leader in mobile messaging solutions for small and medium-sized businesses in the US, Australia, New Zealand and Europe.
MessageMedia, which employs more than 350 people, offers a web-based SaaS suite that makes it easy for businesses to leverage two-way messaging without any need for coding or familiarity with application programming interfaces (APIs). MessageMedia’s tech platform is highly automated and scalable and has been tailored to meet the specific needs of smaller businesses. The technology currently serves over 60,000 customers and deals with more than five billion messages a year. MessageMedia is performing particularly strongly in the US where the business is currently adding more than 1,500 new customers a month.
Sinch plans to retain MessageMedia’s current senior management team under chief executive Paul Perrett, who joined the businesss in 2019 after nearly12 years as chief operating officer of Aconex.
Sinch said it expects one-off integration costs will amount to around $US8 million over 18 months but as soon as the deal is closed MessageMedia will benefit from cost synergies by being able to leverage Sinch’s 47-country messaging network and its established relationships with more than 450 mobile phone network operators. MessageMedia will also benefit from Sinch’s investments in new conversational messaging channels such as WhatsApp, Viber, RCS and Instagram.
MessageMedia has grown organically and through nine acquisitions. Sinch now plans to support the business in accelerating its international expansion.
Sinch chief executive Oscar Werner said: “Addressing small and medium-sized business opens up a new avenue to growth and dramatically expands our addressable market. With MessageMedia as part of Sinch we will have the best team in the industry to capitalise on that opportunity.”
Perrett said: “Mobile messaging delivers tremendous return on investment but smaller businesses often lack tools to cater to their specific needs. Serving these customers presents a tremendous opportunity and with Sinch we can build a global leader in our field.”
J.P. Morgan is acting as financial advisor and Herbert Smith Freehills as legal advisor to MessageMedia. Handelsbanken Capital Markets is acting as financial adviser and K&L Gates as legal advisor to Sinch.
MessageMedia is mid-market firm Mercury’s first exit from its 2018-vintage $600 million third fund. Mercury invested in mid-2018 reportedly taking a 30 per cent stake at an enterprise valuation of $250 million.
MessageMedia was launched in 2000, in the early days of text messaging, as Message4U. The founders were Grant Rule, Justin Lau and Regina Hill who attracted angel investor backers who were later bought out. The business re-branded in 2004 and entered the US market in 2007.