iiNet becomes Australian superpower after buying rival Netspace

iiNet have stepped up their goal of being one of Australia’s major broadband internet providers after recently purchasing rival Netspace for $40 million dollars. The company now believes they are well on their way to gaining their target of 15 percent of Australia’s broadband market share. This acquisition provides a major boost to iiNet’s service as they secure a larger business presence in both Victoria and Tasmania where previously Netspace had a much bigger foothold in the internet community.

iiNet’s Chief executive Michael Malone was noted as saying his company had been looking to bring the two businesses together for over a decade and that as, ‘the weakest areas for iiNet nationally are Melbourne and Tasmania,’ Netspace’s strong presence in those regions would be a great asset to their service. Only last year Netspace launched 10 new ADSL DSLAMs in Tasmania. This takeover brings iiNet’s current market share to 12.4 percent, and raises their total number of internet users to over 520,000.
 
Interestingly, the entire deal was funded by debt, resulting in iiNet’s net debt being raised to $57 million. However, iiNet expect Netspace will earn over $70 million of revenue and $8 million of EBITDA (earnings before interest, taxes, depreciation, and amortisation) in 2010-11, before synergies. Synergies are anticipated to bring in $2 million in the first year and $5 million during the second year of new ownership.

Mr. Malone stated iiNet needed to grow its business as result of the forthcoming NBN (National Broadband Network). 'Owning the link to the home is very important, but then what else do people do with that link? Happily, I think we have a couple of years of good organic growth, but what do we do next? In two to three years' time, having scale is going to be vital.’ he said.

Netspace originated in Melbourne back in 1992 and offers broadband ADSL2+, ADSL, Mobile Wireless and VPN internet access, plus bundled services with fixed-line telephones. As iiNet has gotten closer to becoming the true challenger to BigPond and Optus, their shares recently closed up 17 cents to $2.62.

Netspace’s current owners Stuart Marburg and Richard Preen will quit their positions after the acquisition goes through, leaving their loyal customer base of 80,000 residential and business clients in the capable hands of iiNet. This will bring iiNet’s total number of customers connected to their own ADSL exchanges to 300,000, and if you include all of their services like dial-up, 920,000 total clients.

It’s been quite a tussle in recent times for the third place position in the Australian Internet market between TPG and iiNet, but with this acquisition iiNet move clearly ahead of their main rival. TPG had 442,000 fixed-line broadband internet customers as of Jan.31, 2010. The changeover of ownership is expected to go ahead by 30 April 2010.