DWS to acquire SMS Management and Technology, valued at $124 million

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DWS to acquire SMS Management and Technology, valued at $124 million
Danny Wallis (DWS) and Rick Rostolis (SMS Management and Technology)

SMS Management and Technology has entered into a scheme to be 100 percent acquired by Melbourne IT provider DWS.

If successful, shareholders will receive $1 in cash and 0.39 DWS shares for each SMS share, representing a total consideration of $1.66 per share. This gives SMS a valuation of $124 million.

The companies are among two of Australia’s biggest IT services and body shopping firms, and the parallels do not end there.

Along with the three-letter acronyms, both ASX-listed companies have reported mixed business performance in recent years. They both brought in fresh blood to replace long-term leaders, only to then bid farewell to these new CEOs after short stints.

SMS hired Infosys heavy-hitter, Jacqueline Korhonen, to replace Tom Stianos after 26 years with the company. Korhonen resigned just over 12 months after SMS’s "national sales and delivery restructure" led to a "serious deterioration" of the sales pipeline.

DWS also said goodbye to its chief executive after little more than a year in the job when Lachlan Armstrong departed in May 2015. Former chief executive Danny Wallis, who had stepped back into the chairman role, then returned as CEO.

SMS said the acquisition would allow it to gain further exposure to a business with greater scale and benefits from synergies that DWS may extract.

"This is a positive outcome for shareholders. It represents a significant premium to recent trading, an attractive valuation and the potential for continued investment in the IT services sector," an SMS spokesperson said.

The acquisition is expected to be completed by June 2017 and is still subject to shareholder approval, as well as court and regulatory approvals.

SMS also announced its financial results for the half-year ending 31 December 2016. Revenue was down 10 percent from the same time last financial year to $151.9 million.

The company also reported a $44.5 million net loss relating to the writing-down of goodwill from its consulting business.

Chief executive Rick Rostolis said business turn around was taking longer than anticipated, but that 2017 would be a "critical re-set year" for the company.

"While financial performance is not at acceptable levels, we have taken a number of positive steps in the last six months to stabilise the business and re-position it for growth," he said.

"Having said that, we have made good progress with a number of operational priorities including uplifting our sales capability through the introduction new sales professionals, aligning our sales and delivery teams to better service local markets and broadening our client base.

DWS, on the other hand, has seen renewed growth since Wallis took over the top job in 2015. The company celebrated its best financial results since 2013 last year with revenue growing 53 percent to $144.5 million. Sales were also boosted through the acquisition and integration of UX design firm Symplicit and consulting firm Phoenix IT.

SMS shares were trading at $1.40 before the company was placed in a trading halt on Friday afternoon.

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