Energis yesterday turned a blind eye to the growing uncertainty surrounding the valuations of telecoms companies by announcing an estimated €1bn (£606m) e-commerce acquisition that it believes will "fix" its position in the important German market.
Chief executive Mike Grabiner said Energis's takeover of web-hosting and applications services provider Ision was its largest to date and fitted its stated strategy of broadening its European operations.
"It fixes Germany for us and takes a major further step in our strategy to become the leading data and internet solutions provider in Europe," he said.
Shares in Energis fell 10% in early trading, reflecting uncertainty in the market at the price Energis was paying and the fact that the deal would delay the firm's profitability at a time when telecoms shares are out of favour because of their heavy debt levels.
"The price paid looks very full, is dilutive financially to existing shareholders and the asset quality is questionable," said Mike Williams, analyst at Deutsche Bank. Others fear Energis may need to raise further funds by issuing more shares at some stage next year. Later trading saw the shares recover to close down 19p at 480.5p in a mixed market for telecoms stocks.
Energis finance director Chris Hibbert denied that the deal was over-ambitious or that it was overpaying. "This is not a bold acquisition, it's an evolution of what we have being trying to do over the last two or three years. Compared to valuations we saw earlier in the year, it is a far better price."
Ision, based in Hamburg, specialises in complex webhosting and other internet products to large companies wanting to increase online business. Customers include Europe's largest online stockbroker Comdirect, Deutsche Bank and media group Bertelsmann.
It also owns more than a dozen internet hosting centres across the continent. In the nine months to September 30 Ision had revenues of £40.7m and pre-tax losses of £6.8m.
Energis believes the market Ision operates in should sustain strong growth for several years. The takeover involves a cash and shares payment of €812m to Swiss firm Distefora for its 75% stake and an offer for the remaining publicly traded shares which is likely to take the deal value to €1bn.
The move comes at a trying time for Energis. Wanadoo's recent takeover of Freeserve has cast some doubt on Energis's long-term relationship with the British internet firm. Their contract runs until September 2003.
Energis had secured a position to become the network provider to Richard Branson's People's Lottery but yesterday's decision by regulators to stick with Camelot is thought to have cost it £40-50m in annual revenues.
