(Alliance News) - Telecoms services firm Toople PLC is to raise over GBP1 million to fund the "transformational" purchase of DMS Holding.
DMS is the holding company for Bishop's Stortford-based DMSL, a firm which provides unified communication services in the UK. It was founded in 2002, and delivered revenue of GBP3.1 million in the year to April 2019 and pretax profit of GBP331,282.
Toople is to place 1.20 billion new shares at a price of 0.1 pence each, raising GBP1.2 million. It will also be issued GBP1.6 million of zero-coupon secured loan notes to HomeSelect Finance to raise GBP1.2 million net.
Hertfordshire-based Toople's shares were 37% lower on Friday morning in London at a price of 0.10p each.
The proceeds of the share placing and note issue will be used for the acquisition of DMSL. Toople is to pay GBP460,000 in cash and issue 1.1 million shares to DMSL.
"This is a transformational acquisition for Toople with strong operational and market synergies as DMSL operates primarily in the business-to-business space and also offers hosted telephony. They have a comparatively low churn rate with many customers on 12-month auto-renew at the end of their initial contract term," said Toople Chief Executive Andy Hollingworth.
"When you combine this with their stable margins driven from BT [Group PLC] commissions and high margin on directly contracted voice over internet protocol growth it makes for an attractive proposition."
"Financially it makes perfect sense as DMSL is already profitable and has been for a number of years. As a result, the combined business will accelerate to earnings before interest, tax, depreciation, and amortisation profitability and cash self-sufficiency, reducing the historic reliance on the market to provide funds for working capital," Hollingworth continued.
"It also provides us with far more predictable and controllable income streams. Significant synergies have been identified to improve overall group profitability and cash generation and there is the possibility for further margin enhancement once direct business has been migrated onto Toople's proprietary Merlin platform."
Toople also unveiled annual results Friday, reporting revenue growth of "over" 80% to GBP2.5 million. Broadband revenue more than trebled to GBP1.3 million, and Toople said this growth came despite sacrificing over GBP600,000 of revenue due to ending "onerous" partnership agreements.
Gross profit more than doubled, to GBP478,704 from GBP180,457.
"I am very pleased to update our shareholders on another record year of performance, as our reach across the small business market continues to grow rapidly, firmly positioning Toople in the market as the alternative telecommunications provider of choice to UK SMEs," said CEO Hollingworth.
Non-Executive Chair Richard Horsman said: "The strength and growth of the business has continued into the new financial year and, given the various operational improvements we have made, strategic investment in our core business and our excellent product offering and customer service will, we believe, ultimately set us on the road to achieving our stated goal of long term future profitability.
"This is likely to be significantly accelerated by our M&A activity in the future."
By George Collard; georgecollard@alliancenews.com
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Toople Plc (TOOP)