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Cogeco offer is a good deal for Peer 1 shareholders, says Byron Capital

Peer 1 Networks CEO Fabio Banducci.

Peer 1 Networks CEO Fabio Banducci.
Peer 1 Networks CEO Fabio Banducci.
On Friday, Cogeco (TSX:CCA) and Vancouver junior Peer 1 Networks (TSX:PIX) announced they had entered into an agreement in which Cogeco would acquire Peer 1 for $3.85 a share. The offer represents a 32.1% premium to Peer 1′s 20-day volume-weighted average share price.

In a research update to clients Friday, Byron Capital analyst Rob Goff said Cogeco’s offer is in line with peer transactions such as BCE’s billion dollar pickup of data-hosting company Q9 Networks this past June. He expects the transaction will have no problem finalizing, considering shareholders representing about 62% of Peer 1 shares have agreed to tender to the offer and just 66.6% is required. The only caveat to this assessment, he says, would be a competing bid. Goff says Peer 1 might be an attractive target for Rogers, but considers a late entry from that company a stretch because the valuation on the Cogeco deal is “solid”.

The Byron analyst says Cogeco’s interest in Peer 1 is the latest move in a broad-based sector consolidation that has featured a wide range of buyers, including legacy telco and cable providers, private equity groups and dedicated web hosting/managed service providers. He says Cogeco can finish Peer 1’s expansion in the U.K. and in Toronto, an derive $10 – $12 million of incremental revenue from each of four sites in the two areas. He believes this alone will generate $4.5-$5.4 million of incremental EBITDA for Cogeco.

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 the $133.6-million it reported as 2012′s topline in September.

Shares of Peer 1 closed Monday at $3.83, just two cents below the proposed takeout price.

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About The Author /

Nick Waddell
Cantech Letter founder and editor Nick Waddell has lived in five Canadian provinces and is proud of his country's often overlooked contributions to the world of science and technology. Waddell takes a regular shift on the Canadian media circuit, making appearances on CTV, CBC and BNN, and contributing to publications such as Canadian Business and Business Insider.

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