In its largest transaction to date, Telus International Inc. acquires WillowTree, an American mobile applications and technology company, for US$1.2 billion in an offer from the digital service provider aimed at expanding its customer base.
Vancouver-based Telus International, which is controlled by Telus Corp., is paying US$1 billion for WillowTree, of which US$125 million will be settled in Telus International stock. The rest of the acquisition will be paid in cash. The company will also incur additional debt of US$210 million.
Certain members of WillowTree’s management team have agreed to reinvest a total of US$160 million in equity, which can be cashed out if the company meets certain performance targets.
Analysts say while the acquisition didn’t come cheap, WillowTree’s skills in mobile technology will help fill a gap in Telus International’s expertise and introduce a variety of high-profile customers and new industries. in his wallet. However, some observers have expressed concerns about the amount of leverage the firm has taken.
WillowTree, founded in Charlottesville, Va., in 2008, markets itself as a full-service digital product consultancy, providing software, design and marketing tools to businesses expanding their presence online. The company has more than 1,000 employees in Canada, South America and Europe. In 2021, WillowTree’s revenue was around US$140 million, up 50% from the previous year, according to figures provided by Telus International.
Majority shareholder Insignia Capital Group will sell its stake in WillowTree after initially investing in the company in 2018.
The deal follows Telus International’s long-standing strategy to grow its full-service technology consulting offerings. Chief executive Jeff Puritt told The Globe that the acquisition will help the company become a leading technology consultancy at a time when the stakes are higher for companies developing their digital strategies in a backdrop of inflation, supply chain issues and continued recession. .
“Having a capability that can respond and mitigate…those fears, those concerns and deliver as promised on time, I think is more important than ever,” Mr. Puritt said.
He said the acquisition will help the company grow its business particularly in the health, agriculture and consumer goods sectors.
In a note to investors, Desjardins analyst Jérôme Dubreuil said that despite the high price, given the depressed valuations of many tech companies, the case for the deal was nonetheless strong, noting that the experience of WillowTree will help increase Telus’ reach in mobile applications, which to date has not been part of the company’s core business.
WillowTree will also bring a list of Fortune 500 customers, including PepsiCo. Inc., Fox Corp., Marriott International Inc. and CBC.
Nonetheless, markets reacted negatively, with Telus International stock down % for the day at
Credit rating agency Moody’s Investors Service said in a note to investors that the acquisition is credit negative, meaning the additional debt moved the company’s obligation into an over-leveraged position. However, Moody’s maintained the company’s bond rating at Baa1., which means that the bonds are subject to moderate credit risk.
“Telus currently has a negative outlook because we question management’s willingness and ability to deleverage without issuing equity or proceeds from the sale of assets used to reduce debt,” analysts Peter Adu wrote. and Paresh Chari in the note.
The deal is expected to close in January 2023 and is subject to regulatory approvals.
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