Telecoms technology specialist Calnex Solutions has completed a multi-million acquisition to expand its reach into markets for testing software applications.
In a deal that is expected to be an “important contributor” to profits in the coming years, Linlithgow-based Calnex is paying up to £3.5 million for iTrinegy, a developer of software-defined test networks technology. Based in Stevenage, Hertfordshire, iTrinegy’s NE-ONE hardware and software is used to create real-world network test environments to verify the performance of applications before they go live.
The deal includes £2.5m in cash upfront, plus up to a further £1m in shares and cash linked to iTrinegy meeting certain sales targets during the year to March 2024. A maximum of 322,579 Calnex shares will be issued under this earn-out payment.
The announcement came as AIM-listed Calnex said its results for the year to the end of March will be “slightly ahead” of current expectations after it successfully managed to source semiconductors needed to ship all orders scheduled for the final month of the financial year. It also reiterated previous guidance that it is starting the new financial year with order books at record levels.
Employing nine people, iTrinegy was owned by its three founder directors who will stay on following the acquisition, plus a fourth investor. Its customers span the technology, financial, gaming, military and government sectors, and include major names such as Juniper Networks, JPMorgan Chase, Ubisoft Games, Babcock Marine and Vodafone.
READ MORE: Calnex rings up maiden dividend payment as 5G demand rolls on
It generated revenues of approximately £1.4m in the year to September 30, with gross margins in the region of 80 per cent. Roughly 60% of its revenues are generated from customers based in North America.
Calnex, which was set up in 2006 by chief executive Tommy Cook, said it plans to scale up the business by using its sales and marketing capabilities to build and grow an iTrinegy reseller network, particularly in the US. The acquisition is expected to enhance earnings in the year to March 2023 and be an “important contributor” to group profit thereafter.
“We are delighted to welcome the iTrinegy team to Calnex,” Mr Cook said. “With both businesses developing high-quality, complex, technical testing solutions, trusted by some of the world’s most demanding organisations, we are particularly excited by the strategic fit of the two organisations.
“The cloud migration taking place across multiple sectors and the growth in internet-based applications is fuelling demand for test solutions that can analyse, predict and verify application performance over complex, distributed networks. We see great opportunity ahead for the NE-ONE technology and look forward to working together to accelerate iTrinegy’s growth and open up new customer segments for Calnex.”
READ MORE: Calnex off to a record start in the new year
Analyst Ian McInally of house broker Cenkos Securities said iTrinegy is a “good fit” for Calnex. For the financial year to the end of March, he is expecting the Scottish firm to post increased revenues of £20.2m with pre-tax profits of £5.6m, up from £3.6m last year.
The company will report its latest year-end results on May 24, when it is expected to provide a further update on trading prospects for the coming year. This should include further information on how it is managing the global shortage of semiconductors upon which its testing equipment relies.
Calnex works with component manufacturers, equipment vendors and network operators as well as “hyperscale” and enterprise clients such as Apple, AT&T, BT, China Mobile, Cisco, Facebook and Microsoft. Since its flotation in October 2020, revenues at Calnex have been driven by demand for its testing equipment amid the continuing roll-out of 5G mobile networks.
Mr Cook is the company’s largest shareholder with a 21% stake, followed by the British Growth Fund investment group on 15%. Shares in Calnex closed yesterday’s trading 1p higher at 158.5p.
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules here