Business broadband provider 5G Networks has agreed to buy two IT services divisions from fellow ASX tech stock Inabox for $5.7 million.

The deal includes Inabox’s Hostworks and Anittel businesses which employ 200 staff in 12 offices.

5G Networks (ASX:5GN) jumped 10 per cent to 64c in early Monday trade. That’s up from the stock’s 25c issue price in November.

Inabox was steady at 69c.

Inabox (ASX:IAB) announced in June — after a query from the ASX — that it was considering a number of approaches from potential buyers of the company as a whole or its individual divisions.

The stock plummeted in November after a profit warning following the loss of $6.8 million in revenue when several customers left its newly acquired Hostworks cloud provider division.

At the time of the acquisition, Inabox downgraded Hostworks revenue from $22 million to $15 milllion and EBITDA earnings from $3.5 million to “neglible”.

In February Inabox said Hostworks had “largely implemented growth and profitability initiatives” and would contribute “more meaningfully to earnings in FY19”.

Today 5G networks — which listed in November after raising $4 million at 25c — announced it would buy Inabox’s direct business which includes Hostworks and a similar business Anittel.

Inabox has previously reported that in the first half, the direct business — which supplies IT and communications solutions for big companies and government — contributed $26.2 million revenue, up 41 per cent on the same period in the prior year.

5G Networks said today the acquisition — to be funded from existing cashflow — would add $43 million revenue.

The $5.7 million purchase price “represented a two-times EBITDA multiple once immediate synergies are recognised”, the group said.

The acquisition would help 5G Networks fast-track roll-out of a national business broadband network (the name has nothing to do with 5G wireless mobile networks).

“5GN is currently negotiating terms of a bank debt facility in the range of $3 million to $5 million to fast-track capital projects to complement the national business and working capital requirements.”

Prior to the announcement 5G Networks shares had been rising in recent weeks to close at 58c on Friday.

Here’s 5G Networks share price movements since listing in November:

5G Networks shares since listing in November (ASX:5GN)
5G Networks shares since listing in November (ASX:5GN)

Inabox told investors the sale “cleared the way for Inabox to maximise the contribution from its most profitable growth engine, its indirect business”.

That business — which focuses on white-labelled telecommunications, billing and support services — was also for sale, Inabox said. It generates $50 million revenue per year and EBITDA earnings of $5 million.

Here’s Inabox’s share price since announcing the Hostworks revenue downgrade in November:

Inabox Group shares (ASX:IAB) over the past year
Inabox Group shares (ASX:IAB) over the past year