4th ICT acquisition in Australia – Overdrive or Rational?
- Singtel’s ICT subsidiary NCS has acquired ARQ Group (ARQ) for A$290 million.
- With Australia ICT workforce of 1900, NCS needs to start delivering soon to justify the pace of acquisitions in our view.
- Maintain BUY with unchanged TP of S$3.13.
Singtel’s ICT subsidiary NCS has acquired ARQ Group (ARQ) for A$290 million. The investment is NCS’ fourth in Australia in the past 15 months. Headquartered in Melbourne, ARQ has expertise in cloud, digital, data and analytics solutions, and is one of the fastest-growing digital services company in Australia. ARQ’s clientele spans half of the ASX’s top 20 companies across diverse sectors and it has built a strong partnership ecosystem across major cloud hyperscalers in Australia. ARQ’s 560-strong workforce will increase NCS’ headcount in Australia to 1,900. ARQ’s revenue is projected to reach A$118M by end 2022, a year-on-year increase of 38%, while its EBITDA is expected to grow to A$18.4M. The acquisition price represents an EV/EBITDA multiple of 15.7 times adjusted for one-off factors.
In early March, NCS acquired Dialog in Australia for A$325 million, trebling its Australia workforce to 1300. Dialog has a strong clientele across Federal and provincial government departments while ARQ seems stronger with large listed companies in Australia. Dialog offers core IT capabilities while ARQ offers more digital capabilities. In Oct 2021, NCS had acquired Eightly20 Solutions for A$43m in Oct 2021 and in Sep 2021, acquired Riley for an undisclosed amount.
With 1900 workforce in Australia compared to 6000 plus in Singapore, NCS has adequate boots on the ground now. According to Gartner, IT spending in Australia is projected to grow 6.5% in 2022. The largest IT spending segment in Australia is IT services, which is expected to grow 6.1% to A$39 billion in 2022. A lack of IT talent has often been cited as a big challenge in Australia.
We prefer to see how much success can NCS achieve in Australia with 1900 workforce before devoting more capital.