Internet provider Spirit Telecom (ASX:ST1) is acquiring cloud-services business VPD Group in what it calls a “transformational transaction”.

In a cash and share deal spread over three tranches, Spirit will fork out $14m for the initial tranche — $7m in cash and $5.8m in ST1 shares. The equity component will be raised with an issue price of 20c per share.

Shares in Spirit Telecom rose more than 10 per cent in morning trade to 22.7c.

The total maximum purchase price will top out at $27.5m, with two additional tranche payments on the cards if VPD Group meets the relevant core earnings (EBITDA) performance targets.

“VPD Group’s clients are moving through a major generational technology change as they migrate to the cloud, and require high-speed internet and specialised IT services which Spirit can now provide nationally,” Spirit said.

The $14m up front payment is based on a multiple of four times estimated underlying earnings of $3m-3.5m.

Spirit said the strategic integration would result in a new business line, Spirit Partners, which will aim to provide internet and cloud services across the group’s combined distribution channels.

VPD Group’s customer base is centred around mining, aged care and industrials where it provides “private and public cloud, security, voice and
data services”, from which around 85 per cent of revenues are recurring in nature.

Co-founder Jason Wade will take on the role of chief technology officer at the combined group, which he said had the potential to be a “serious threat” to major competitors in the telco sector.

“Our joint strategy of bundling products for SMEs in the Spirit X Digital sales platform is sure to make the larger telco players wake up and listen,” Wade said.

“We look forward to shaking things up in telco and IT across Australia and providing the services that Australian SMEs deserve.”


In other ASX tech news today:

Online gaming company MSM Corporation (ASX:MSM) announced a new distribution deal with Galaxy Racer Esports, which will take over management responsibilities for all Esports content for MSM’s Megastar gaming platform.

MSM chairman Antoine Massad said the rollout of an updated Megastar 2.0 platform is “planned to have a heavy Esports component in terms of content distribution and as a tournament broadcaster”. Shares in MSM rose 8.8 per cent to a multi-year high of 3.7c.