Falanx Group net proceeds from Assynt disposal can fuel and accelerate growth opportunity (LON:FLX)

Falanx Group (LON:FLX) Chief Financial Officer Ian Selby caught up with DirectorsTalk for an exclusive interview to discuss the disposal of Assynt, becoming a pure play cyber security business, reasons for selling Assynt & what the proceeds will be used for and what investors can expect over the next 6-12 months.

Falanx Group protect, defend, and inform businesses in the face of growing political and cyber risks. This week the company announced that it’s entered into an agreement to dispose of its Assynt Strategic Intelligence division for an estimated cash consideration of £4.6 million to Cross Atlantic Solutions. Joining me today to discuss the news if CFO Ian Shelby.

Q1: Ian, you’ve announced that you’ve entered into an agreement to dispose of Assynt Strategic Intelligence division, could you just talk us through the highlights?

A1: What we’re doing is we’ve sold it for an enterprise value of £4.6 million and a cash to a buyer with US investors.

Assynt is very much a standalone business, before we were two separate businesses, we had our core Cyber division which is ongoing and then the Assynt Strategic Intelligence business and we had alluded to, in recent RNS’s of Cyber being the core. We’ve now consummated the change in our structure and our strategy to address this market.

So, last year, Assynt did revenues of about £2.1 million and did £100,000 positive of adjusted EBITDA so if you look at those, we sold it for over twice revenue at about 46 times historical EBITDA so they’re strong multiples.

Q2: Falanx has now become a pure play cyber security business, how will this impact the company?

A2: We see cyber security as a very high growth market, we’ve seen today about a FTSE250 company getting a vicious cyber attack on it this year. The threat is only ever-increasing and now we’re focussed on one sector where we’re really well positioned and of course, with a much stronger balance sheet and cash resources behind this, to address it.

You’ll have seen in our full year statement last week that the Cyber division, its profitability is much improved, it’s now profitable, last year it lost about £400,000 so it’s going in the right direction.

Furthermore, we’ve got service enhancement, we’ve got Triarii our monitoring service and launched, as of Monday this week, we have f:CEL, our entry point enterprise cyber security risk assessment tool. We’ve now got partners in line with this, we’ve got N-Able which is spun-out of Solar Winds in July of this year, that’s got 25,000 service providers and about 500,000 end user customers.

So, we can see that we’ve got a good market to go after that and we really believe this is a growth opportunity and having the net proceeds around means we can fuel and accelerate things.

Q3: Could you just summarise the reasons behind selling the division and what the company intends to do with the proceeds of the disposal?

A3: Before, the company was set into two separate divisions with very little crossover. You have the Cyber division which is largely SME’s and the Assynt division which is some of the largest corporates in the world and there’s very little crossover between the two and historically, there hasn’t been, completely different organisations. Therefore, you were never going to get synergies in essentially a £5 million business but it was split into two separate businesses, as it was in the previous financial year.

This will mean that all management focus is on one division and it’s well financed and in a good position to grow.

What we’re going to be doing with it, get investing in the channel, grow sales and marketing, all obviously very controlled, service enhancement, service delivery, focussing on that so we can really expand the business. That’ll clearly be in a very measured cost controlled way of doing it and making sure we get the right returns on it.

Also, we will look to do M&A within the sector and only stuff we know where we can make it earning-enhancing.

Q4: Mike Read mentioned that amongst the Falanx Group directors, there’s a confidence about the company’s future, what can investors expect over the next 6-12 months?

A4: We’ve all got skin the game, we’ve all bought shares in the company and we’re all absolute believers in it.

We are now focussed on a single business, that’s the difference so all the attention is now on Cyber. We are well financed, we can make some investments we need to further grow revenue and support revenues growth into the future.

We’ve got two new recurring revenue product/service streams on board with Triarii and now, of course, with f:CEL so we’re going to be looking grow our recurring revenue base further and obviously that generates revenue in a very predicable ongoing basis.

We will look at M&A opportunities but clearly, only things that can be earnings-enhancing.

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