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Date : 18/10/2023

Telstra Group Ltd (ASX: TLS) Bold Move: Acquiring Versent and What It Means for the Cloud Market

Telstra Group Ltd (ASX: TLS), the Australian telecommunications giant, recently made headlines with its decision to acquire Versent, a Melbourne-based cloud technology consultancy. However, the news has left some investors scratching their heads as the Telstra share price fell 10% over the last six months. Why, despite this major acquisition, is the share price tumbling? And more importantly, what does this acquisition signify for the broader tech industry?

TLS: FY23 Highlights (In AUD)

TLS shares are trading at $3.89 and have declined around 10% in the past 6 months. Its current market cap is approximately 44.95 Billion.

telstra shares news

  1. Revenue: 22.70 Billion
  2. Net Income: 1.93 Billion
  3. EPS: 0.18
  4. EBITDA: 6.23 Billion
  5. Cash and Cash Equivalents: 955 Million

Telstra’s New Purchase: Versent

Versent is familiar to the tech scene. Established in 2012, the company has specialised in designing, constructing, and operating cloud-native applications, platforms, and services. With offices spanning Australia, Singapore, and the U.S., Versent has impressively reported a net revenue of $130 million in FY 2023. Their consistent 17% compound annual growth rate from FY 2020 to FY 2023 further accentuates their market success.

Moreover, Versent is no small player. Their team, comprised of over 500 experts, works closely with 40% of the ASX 100 companies. This collaboration involves aiding businesses in their digital transformation journey via cloud technology. Partnerships with giants like AWS and Microsoft bolster their market position.

An intriguing part of the deal is Telstra’s acquisition of Stax, a Versent subsidiary. Stax offers a unique self-serve cloud management platform, targeting enterprise and mid-market customers. This tool empowers businesses to independently design, construct, and operate their cloud systems.

TLS: Why Telstra is Betting on Versent

The acquisition move isn’t partially out of the blue. Telstra had previously hinted at scrutinising Versent, making this development a much-anticipated one for those in the know. The acquisition, priced at $267.5 million, clearly indicates Telstra’s ambitions to fortify its subsidiary, Telstra Purple, which aids businesses in digital transformation.

David Burns, Telstra Enterprise Group Executive, emphasised the company’s vision, noting the surging demand for technology solutions, particularly cybersecurity and cloud-led transformation. He believes that Versent’s expertise will complement Telstra’s existing capabilities, bolstering its position in the ever-evolving tech market.

TLS: Broader Implications for the Tech Industry

The acquisition isn’t merely a standalone event but a testament to the growing significance of cloud technology and IT services. Recent years have witnessed a flurry of M&A activities in the ASX sector. The trend is evident from Empired’s acquisition by Capgemini in 2021 to DWS’s purchase by HCL Technologies. Cirrus Networks’ recent acquisition by Atturra adds another feather to this cap.

This growing interest in acquisitions signals a potential goldmine for small-cap companies like Atturra and ReadyTech. They may soon find themselves on the radar of larger corporations seeking to diversify and strengthen their portfolios.

Moreover, the transition to the cloud is far from over. Contrary to popular belief, Goldman Sachs has recently estimated that the shift from traditional on-premise systems to cloud software has only reached 20%. With cloud-based revenues at US$235bn, there’s a massive potential for growth compared to the expansive enterprise IT revenues of US$1.4tn.

Conclusion

Telstra’s decision to acquire Versent can be seen as a forward-thinking strategy to enhance its service offerings and tap into the cloud market’s untapped potential. This move offers a dual takeaway for investors and market watchers: the ever-increasing importance of cloud services and the potential for further M&A activities in the tech sector. As businesses globally continue their digital transformation journeys, companies and investors that pivot and adapt will be poised for success in this burgeoning market.

 

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