From the Smart50 to a $200 million takeover: M2 Telecommunications buys Primus as telco consolidation continues

The consolidation in the telecommunications space has continued ahead of the roll-out of the National Broadband Network as former Smart50 entrant M2 Telecommunications announced its plans to buy Primus in a $200 million deal.

The move comes as telcos across the country have been engaging in a number of mergers and acquisitions to grow scale, as customer numbers, not infrastructure, becomes the key metric of power in the NBN age.

“This is just more Tier-2 consolidation where the NBN is driving that need to grow,” Telsyte director of research consulting Chris Coughlan told SmartCompany this morning.

M2 Telecommunications, which was listed on the Smart50 list back in 2008, announced its plan to buy ISP Primus yesterday in a deal worth $200 million.

The deal signals M2’s intensions to enter the retail market, after the company has made a number of acquisitions in the past few years to service the B2B and small business space. The acquisition also gives the company some clout to begin offering more cloud services.

The $200 million purchase – which will be paid in cash – also provides M2 with 165,000 customer contracts and some infrastructure, including data centres.

Chief executive Geoff Horth was contacted this morning, but was not able to reply prior to publication. He said in a statement the purchase will “ensure our sales teams are armed with the latest managed/hosted service offerings to meet the needs of current and prospective customers”.

The purchase of Primus from its American parents, PTGi, also means that Primus is now fully Australian-owned. It’s one of the oldest ISPs in the country, starting back in 1997, and operates in all states and territories.

M2 plans to raise $83.1 million from shareholders in order to fund the acquisition, with the rest coming from its debt facility.

Last year, outgoing chief executive Vaughan Bowen told SmartCompany that it may start looking at acquisitions if it found the right partners.

“Particularly given that the landscape is changing so much at the moment, it would be a shame for a business like ours that is so good at taking opportunities, to just bury them.”

Coughlan says the move follows others, such as the purchase of Internode by iiNet, as the NBN grows closer.

“This is just more Tier 2 consolidation. M2 is a player in that space, and has emerged as a slightly bigger player in this area now.”

M2 was listed in the 2008 Smart50 list, at which point it had $100 million in revenue with just 170 employees. It now has revenue of over $400 million, and the Primus acquisition will add 500 employees alone.