M2 banks on telco buying strategy

M2 Telecommunications is pre­paring to spend more than $100 million on new acquisition targets this year as the company looks to cement its position as the fourth force in the $35 billion-a-year telco sector.

M2 chief executive Geoff Horth said the telco was considering a “couple of sizeable ­acquisition opportunities” to propel the company into its next phase of growth.

“The targets we are looking at now may come to nothing, but we’ve never had more conversations than we are having at the moment,” he said.

“We will not be sitting on our hands waiting to be approached. We are on the front foot to explore opportunities.”

Mr Horth said M2 would not be spending money on any targets that brought in less than $25m in earnings a year, saying anything below that figure would be “immaterial” to the telco’s growth.

“We do $160m in earnings a year, so any new businesses we might acquire will need to be dropping in at least $25m in earnings to make a difference,” he said.

Last year, the telco spent $250m on budget broadband brands Dodo and Eftel, which together generate about $50m a year in earnings. This implies that M2’s latest acquisition targets could command sale prices in excess of $100m.

M2 has been on an acquisition binge during the past five years, spending a combined $220m acquiring Unitel, People Telecom and Primus Telecommunications. With Dodo and Eftel, the telco group has spent more than $500m on acquisitions since 2008.

Its acquisitions have helped bolster the company’s subscriber numbers, but Mr Horth said there remained a number of acquisition targets that could help boost its base even more.

“It’s core to our business. We have good pedigree in doing M&A and it’s been of important value to our shareholders. So we absolutely see it as an important part of our future growth strategy,” he said.

M2 recorded net profit after tax of $30.9m for the six months to December last year, up from $24.7m in the same period in 2012. The company forecasts net profit for the current financial year will rise by 48 per cent to between $60m and $70m. M2 is also on track to make more than $1bn in annual revenue for the first time.