Sinch (MW) has announced the acquisition of US based Inteliquent for a total cash consideration of USD1,140m. Inteliquent is the largest independent voice communications provider in the United States and operates a fully redundant, geo-diverse, carrier-grade tier 1 network that is directly connected to every major telecom carrier and covers 94% of the US population. The acquisition will establish Sinch as the leader in voice connectivity for both enterprises and telecom carriers in the US.
The purchase price will amount to USD1,140m on a cash and debt-free basis, which corresponds to an EV/EBITDA multiple of 8.4x (10.2x excluding Covid-19 adjustments). The transaction will be financed through a mix of cash and debt. According to Sinch, pro-forma leverage will rises to 3.7x following the transaction, which clearly puts pressure on the company’s financial target of a leverage <2.5x over time. However, Sinch is confident that cash generation and earnings growth will reduce the leverage ratio in the time that follows before the acquisition of Inteliquent is closed (expected H2 21).
In our view, the transaction is in line with the company’s communicated strategy of a partly M&A driven growth. In addition, the entrance of SoftBank as a major owner in November 2020 signals that the growth ambitions will remain. However, the Inteliquent acquisition is rather aggressive and clearly increases the financial risk for the credit case. Although the growth prospects are exciting, we see the announcement as credit negative due to the increased risk profile.
