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

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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