Company Announcements

Acquisition of HFO Holding AG

Source: RNS
RNS Number : 7801R
Gamma Communications PLC
02 July 2020

The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.


2 July 2020

Gamma Communications plc


Acquisition of HFO Holding AG ‑ a leading provider of IP telephony services in Germany


Gamma Communications plc ("Gamma"), a leading technology-based provider of communications services to the business markets in the UK, Spain and the Netherlands, is pleased to announce that it has acquired c80% of the issued share capital of HFO Holding AG ("HFO") on 1 July 2020 (and has an option to acquire the remaining c20% over the next three years).


Strategically important transaction; gives Gamma market presence in Germany


Gamma has previously stated its ambition to build on its success in the UK UCaaS market by expanding into Europe.  Gamma acquired DX Groep in the Netherlands in October 2018 and expanded into Spain through the acquisition of Voz Telecom in April 2020.  It is now expanding its European footprint further into Germany through the acquisition of HFO.  The combination of the Cloud PBX markets in Spain, Netherlands and Germany is over three times the size of the UK market with conversion rates from legacy PBX products to Cloud based products generally being much lower in mainland Europe.  These countries are following a similar cloud telephony migration path to the UK, providing Gamma with a significant opportunity to leverage its capabilities and know-how to build leadership at a critical time in the development of this large continental growth market. 


HFO is one of the leading SIP Trunk providers in Germany with an excellent reputation for product quality and end-customer service.  It has a strategy to build on this expertise in both the VOIP and broad business communications markets, and has recently started to sell Cloud PBX offerings through its extensive network of channel partners across the German market.  


As part of its stated European expansion strategy, Gamma had previously identified Germany as a key target geography. With an overall market of c.36 million PBX seats (almost twice the UK market size) but a cloud penetration of only c6% (one of the lowest rates in Western Europe), the German market for cloud telephony is forecast to grow rapidly.


Acquisition rationale


Gamma believes that it can use its commercial strength and expertise of developing and selling a market leading cloud PBX solution via the channel to accelerate HFO's growth in the emerging Cloud PBX market in Germany.  In the UK, Gamma has been able to convert a strong presence in the SIP Trunk market into a market leading presence in Cloud PBX.  Gamma's team will work with the experienced management team from HFO to replicate this success in Germany.


Like Gamma, HFO sells to end users directly as well as indirectly through a network of wholesale partners and dealers. 


HFO also provides B2B mobile services through its well-known Epsilon brand with over 100,000 connections per year that are sold through its resale partner and dealer network.  This presents an opportunity to sell a mobile based Cloud PBX product through this well establshed channel, where HFO has an excellent reputation for customer service and delivery.


The acquisition is expected to be earnings enhancing immediately from completion.




The initial consideration for the acquisition of HFO is €20.4m for approximately 80% of the shares (these shares are held primarily by institutional investors).  Gamma has an option to purchase the remaining c20% of shares (which are held by management) in two tranches of c8% in 2021 and 2022 (where the consideration will be based on the results of the preceeding financial year) and one final tranche of c4% in 2023 (also based on the results of the preceeding financial year).  This additional consideration will in aggregate be between €7.5m and €17.5m and will be payable in cash.  The upper end of the option price will only be achieved if HFO achieves challenging growth targets related to its IP telephony business.


The initial consideration was paid in cash  from Gamma's existing cash reserves (Gamma had net funds of £37.7m at 30 June 2020).  As part of the transaction, management has agreed to re-invest approximately 17% of the cash proceeds it will receive from each tranche of the additional consideration into Gamma shares which will then be "locked up" for two years after each re-investment.


HFO Financial Performance


For the year ended 31 December 2019, HFO had revenues of €45.9m, operating profits (adjusted EBITDA) of €3.2m and at 31 December 2019 had net assets of €4.6m.  These figures are "pro-forma" having been adjusted for two discontinued business units (one of which was shut down in early 2019 and one which was sold in February 2020).


The IP Telephony business contributes approximately 35% of overall revenue but approximately 70% of the EBITDA; the remainder is the Epsilon B2B mobile business.


At completion HFO had net debt of €2.9m.


Background to HFO


HFO has been providing communications services to the SME segment in Germany since 1997.  Like Gamma, HFO initially offered traditional voice products (such as carrier pre-selection) but has enhanced its portfolio by adding next generation IP-based solutions.  It has been selling SIP Trunks since 2011 and started selling Cloud PBX solutions more recently.


Through its Epsilon brand, HFO is also a large B2B mobile distributor in Germany, offering mobile connections from all three major mobile network operators.


Headquartered in Oberkotzau, Bavaria, HFO employs approximately 150 people and operates nationwide in Germany through a reseller network of over 1,000 partners.


An experienced management team is led by the CEO, Achim Hager (who has 23 years' experience in TMT).  Achim will continue to lead the business as Gamma executes its growth plans for the German market.



Andrew Taylor, Gamma's Chief Executive Officer, commented: "The acquisition of HFO provides Gamma with a fantastic opportunity to enter the German market - one of the largest but under-penetrated Cloud PBX markets in Western Europe.  We warmly welcome all of HFO's staff and customers into the Gamma family and we look forward to working with them."


Achim Hager, CEO of HFO, commented: "We are delighted to be completing the move to Gamma and see this as the next step in the development of our business.  We believe that we can combine our experience of the German market with Gamma's experience of taking Cloud PBX into the channel to develop a leading Cloud PBX business in Germany.  It is great to have found a partner with similar values and approach."


For further information please contact:


Gamma Communications plc

Andrew Taylor, Chief Executive Officer

Andrew Belshaw, Chief Financial Officer

Tel: +44 (0) 333 006 5972

Tulchan Communications LLP

James Macey White

Matt Low

Tel: +44 (0) 207 353 4200

Investec Bank plc (NOMAD & Broker)

Tel: +44 (0) 207 597 5970

Patrick Robb

Virgina Bull


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