Orascom TMT Investments (OTMT) has agreed to buy 54.6% of Italian internet hosting services company Dada for a consideration of EUR58mn . Dada 's large and diversified customer base is concentrated on small and medium-sized enterprises, leading BMI to believe t he purchase will enable O TMT to leverage its other investments in cloud computing services and software in Italy and the rest of Europe. It will a lso complement OTMT's investment in Italy's largest Internet portal, ItaliaO nline .
At the end of 2012, Dada claimed to serve 510,020 customers across a wide range of industry verticals, up from 493,125 a year earlier. Around 1.8mn unique Internet domains were hosted by the company for these customers, up from 1.772mn a year earlier. Although Dada claims that customer retention rates are high - at around 75% in 2012 - growth in the core domains and hosting business has clearly slowed of late, a development BMI attributes to reduced spending by enterprises at a time of economic austerity. Dada's revenues from domains and hosting grew by just 5% in 2012 to EUR63.5mn. However, EBITDA improved by 32% y-o-y to EUR11.2mn thanks to rigorous cost control initiatives.
|Orascom Branches Out|
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Importantly, Dada returned to profitability in 2012 after three years of losses and it now claims a higher recurring revenue base with high visibility/predictability thanks to a sharper focus on higher-end customers and professionals. Besides Italy, the company has a presence in seven European markets - Ireland, the UK, Spain, Portugal, France, the Netherlands and Italy - with a high potential for scalability thanks to the deployment of unified content management and distribution platforms.
However, it is Italy that Orascom is clearly focused on at present, thanks to its ownership of ItaliaOnline, a company that was created in February 2 013 through the combination of Matrix and Libero . ItaliaOnline operates numerous internet portals, including Free and Virgil , serves more than 14m n active email accounts, reaches more than 60% of Italian Internet users and recorded 20mn unique users per month in 2012 . The business can also leverage the nationwide mobile and fixed broadband networks and customer bases of Wind Telecomunicazioni , an alternative operator backed by Orascom's Naguib Sawiris and Vimpel Communications of Russia.
O TMT also owns 100% of intY CASCADE , a developer of cloud computing applications, products and services to local partners worldwide. It has an unusual co-operative business model that positions it as an aggregator rather than a direc t service provider, but OTMT should be able to leverage the business' resources to provide European SMEs with affordable and scalable cloud products. OTMT also owns 30% of Joyent , a company developing cloud comput ing services and applications for larger businesses and mobile enterprise initiatives . It is likely that all of these businesses will be able to leverage the data centres owned or leased by Dada across Europe as well as the four Italian datacentres operated by ItaliaOnline.
Overall, BMI has a positive view of Orascom's purchase of Dada, given the potential synergies that could be exploited with Orascom's other businesses. However, we caution that the European market remains challenging for all players and that OTMT may struggle to realise a significant return on its investment in the near term. That said, we do expect European enterprises to accelerate investment in cloud-based infrastructure and services in the latter part of the decade and therefore we welcome OTMT's decision to invest in a small but vital part of the European cloud ecosystem.