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January 4, 2004

Volante merger to form $350m services firm

Two of Australia's largest IT services firms are to merge in a deal that will create the largest indigenous services firm in the country.

By CBR Staff Writer

Through the proposed deal, North Ryde-based Volante Group Ltd will acquire its Melbourne-based rival Ipex Information Technology Group Pty in a merger that will create a firm with combined annual revenue of AUD 480m ($350m) and have a workforce of 850 people. Under the terms of the deal, Volante will issue 59.9m shares to Ipex shareholders valuing the merger at $70m, of which 8.97m shares will be issued at a later date depending on the company achieving certain performance targets over the course of the year.

The merger will enable the new look Volante to leap frog Sydney-based Kaz Group (FY03: $259.6m) as the largest indigenous Australian services firm. However it will remain some way behind global giants EDS, IBM Global Services and Unisys, which dominate the market. EDS for example employs some 6,700 people across six states, and has established strong ties with many Australian Government departments such as the Australian Taxation Office, South Australian Government, as well as private sector firms GE, Ericsson, Commonwealth Bank of Australia and Caltex.

Based on estimated revenue for Ipex of AUD 154.8m ($113m), Volante is paying less than half the company’s annual sales for the operation, which employs 400 people. However Allan Brackin, CEO of Volante has commented that the deal values Ipex at approximately ten times its forecast 2004 earnings. Ipex is a hardware and services firm that builds desktop PCs to order, and provides a range of third party services around storage, managed services and application development and support. It has a list of technology partners including Computer Associates, Intel, EMC, Microsoft, Symantec, HP, Toshiba and IBM.

Volante has a history of growing through acquisition. In November 2000 the company doubled in size snapping up AAG Technology Services, which enabled it to grow revenue to AUD 372.7m ($272m) in 2001. However Volante has experienced increased competition from its larger global rivals over the past two years, and the company is hoping that the merged business will give it the scale to compete on a more level footing.

In its most recent year ended June 30 2003, Volante reported a profit after tax of AUD 4.1m ($2.99m) compared to a profit of AUD 4.3m ($3.14m) in 2002, on revenue that fell 11% to AUD 325m ($237.3m). At the end of the period Volante had AUD 14.8m ($10.8m) in cash and no debt. During the year, the company was forced to make a write-off of AUD 545,000 ($397,850) for restructuring, and had to trim its overheads by 15%.

Following the restructuring, Volante now operates across four business units including its IT services business Volante Systems, which is the largest operation generating 95% of sales, as well as its application development arm Volante Solutions, IT recruitment arm Affinity and IT repair arm Global Remarketing. The merger will be voted on during February 2004.

This article is based on material originally produced by ComputerWire.

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