Quindell Portfolio, the ambitious buy and build insurance BPS player, is making its first acquisition outside the UK, taking on South Africa-based telecoms systems integrator and outsourcer Quintica SA (Pty) Ltd and Quintica International Ltd (Quintica) in a shares and cash deal worth c£4m.
There’s not a huge amount of detail on Quintica as a business, other than it has offices in South Africa, Ghana, Nigeria, Kenya, Uganda, Dubai and Abu Dhabi, and delivers technology and supply chain management services to some national carriers and multinational telecom groups.
In terms of numbers, Quintica made revenue of £5m in the year ended 30 June 2012, so Quindell is paying 0.8x current revenue. However Quindell will also pay off Quintica’s £592k shareholder loan over the next twelve months. Quintica is expected to be only ‘slightly earnings enhancing’ over the rest of 2012. However clearly cost cutting is to come since Quintica is expected to generate profit after tax of £710k in FY13 (14% margin based on FY12 revenue) and at least £530k in cash.
Why is Quindell making this move? Quindell already had a minority stake in Quintica (7.7%), and the two companies have worked together over the past twelve months on implementations of Quindell’s Challenger operating support system (OSS). Clearly things are going well since the two companies have now also won a ‘major contract with a leading multinational telecoms group for their South African operation’. As we noted earlier this month, Quindell had pointed to international business as a growth driver in H112 (see Quindell delivers 27% margin in first half).
The deal itself says a lot about Quindell’s ambition to expand outside the UK. Certainly exploiting opportunities in emerging markets via its telecoms technology is the most sensible way to do this. However Quindell will need to be careful that Quintica isn’t a drain on margins and a costly distraction from its emerging UK-focused insurance BPS operation.