Peer 1 acquires NetBenefit, Byron Capital analyst Rob Goff raises target

Peer 1 CEO Fabio Banducci says the acquisition of UK-based NetBenefit vaults the company into "...a clear leadership position in the U.K. managed hosting market and further underscores our commitment to the dynamic and growing EMEA (Europe, Middle East and Africa) region."

Peer 1 CEO Fabio Banducci says the acquisition of UK-based NetBenefit vaults the company into "...a clear leadership position in the U.K. managed hosting market and further underscores our commitment to the dynamic and growing EMEA (Europe, Middle East and Africa) region."

On Wednesday, Peer 1 Networks (TSX:PIX) announced it had signed an agreement to acquire UK-based managed hosting company NetBenefit (U.K.) Ltd., a division of London-based Group NBT Ltd., for 25 million pounds sterling, or (US) $38.5-million.

Peer 1 management says that with its already established operating presence in the U.K., the pickup of NetBenefit will scale them up with material cost synergies and put the company in a “clear leadership position in the U.K. managed hosting market.”

Byron Capital analyst Rob Goff says that while Peer 1 is busy making sensible acquisitions, its attractive economics actually make it a acquisition target in a sector that is consolidating. Goff points out that four shareholders of Peer 1 hold 64.2% of the total outstanding shares and have an agreement that allows any of them to trigger a sale review after August, 2013. In a research update to clients Thursday, Goff maintained his BUY rating on Peer 1 and raised his twelve-month target price on the stock to $3 from his previous target of $2.90.

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Vancouver-based Peer 1 Networks, which was founded in 1999, provides Internet hosting services such as managed hosting, dedicated servers, and cloud computing. The company boasts more than ten-thousand customers with seventeen data centers located in Canada, the U.S. and the U.K. Peer 1 customers include household names such as Plenty of Fish, Virgin Gaming and WordPress.com. The company’s revenue has grown steadily, from $89.3-million in fiscal 2008 to $112.8-million in 2011.

Goff says leverage on the NetBenefit deal shouldn’t be much of a concern to shareholders because it is being financed with $5-million worth of cash the company has on hand and existing credit facilities. The Byron analyst points out that Peer 1 has arranged for new expanded debt financing with National Bank Financial, which includes $150 million in credit facilities plus a $25 million accordion feature. The company’s previous capacity was $75 million plus a $25 million accordion.

Shares of Peer 1 Hosting closed Friday down 1.3% to $2.25.

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