iiNet acquires Netspace for $40 million, pushes into east coast

Perth-based telco iiNet has continued its push into the east coast with the announcement it has acquired Melbourne-based ISP Netspace for $40 million, ending weeks of speculation.

The move comes as iiNet has continued its assault on the top players in the market, Optus and Telstra, signing up new broadband subscribers in New South Wales and Victoria as part of a massive marketing campaign.

Speculation began to grow earlier this month regarding a possible deal between the two companies after iiNet announced it was in discussions regarding a possible takeover. At that time a purchase price of $75 million was quoted, but the company said this was higher than what was being discussed.

iiNet managing director Michael Malone says the acquisition solidified the company’s presence in the east coast and as the third-largest player in the Australian telecommunications market.

“Our strong balance sheet has placed us in a unique position to remain at the forefront of industry consolidation. We are committed to delivering on our growth strategy, and Netspace is a logical and sensible acquisition for us.”

“In addition, the geographic footprint of Netspace is very complementary to iiNet, extending our presence in the key markets of Victoria, New South Wales and Tasmania.”

It was speculated the company would consider taking over ISP Internode, but chief executive Pat Tapper has said the company is not up for sale.

iiNet said the Netspace acquisition would lift its market share to 12.4%, closer to its 15% target, and would add 70,000 broadband customers – bringing its total to 520,000. Total active services would increase by 120,000 to 920,000.

“Netspace is a natural fit for iiNet given the strong alignment of the companies’ products, networks and cultures. It is a great business, having grown strongly in the residential market, and has a loyal customer base given its customer service focus.”

Furthermore, iiNet believes the acquisition will add $70 million to revenue for the 2010-11 financial year, and will also add to its profits. Malone also said that in the two years since its $81 million acquisition of Westnet, the company has proven to itself and the market that it could use larger acquisitions to strengthen its position.

iiNet has made a number of acquisitions in the past five years, as it attempts to challenge the top players in the market. A number of possible smaller takeover targets still remain for the company, including Adam Internet, Eftel, Dodo and Exetel – all of which were mentioned in speculation during the past few weeks.

It is expected that the current Netspace management team will stay on, with iiNet saying the current Melbourne office will stay put.

Netspace is still operated by its founders, managing director Stuart Marburg and technical director Richard Preen. The pair founded the company in the early 1990s, focusing on dial-up internet services, and has since then branched out into both residential and business broadband.

It currently has about 180 employees, spread across Victoria, Tasmania and Western Australia, and provides about 105,000 internet services.