Softbank spends $700m to fund Sinch's M&A ambitions

Softbank has made a hefty investment in Swedish software company Sinch, which says it will use the proceeds of the sale to fund further M&A.

The Japanese operator took part in a new issue of Sinch shares as well as acquiring existing shares from various large shareholders, including the company’s co-founders, racking up a bill that comes in at 5.94 billion kronor, or around US$698.5 million at today’s exchange rate.

Sinch, which specialises in customer engagement via its own a cloud communications platform, said it will “mainly use the proceeds from the share issue to increase the [its] financial flexibility for new acquisitions,” noting that it “is continuously evaluating potential acquisitions.”

Indeed. Sinch has announced two takeover deals worth in excess of US$100 million in the past eight months, starting with the $119 million acquisition of Brazil-based CRM outfit Wavy in late March. Six weeks later it announced the purchase of SAP Digital Interconnect via a cash and debt-free deal worth €225 million (around $270 million).

“The [SAP Digital Interconnect] transaction strengthens our direct connectivity globally. Plus, it enables us to expand and accelerate a range of business-critical services to mobile operators, including products for person-to-person messaging, reporting and analytics,” said Sinch chief executive Oscar Werner, at the time. Backed by its cloud platform, Sinch works directly with businesses to connect them to their customers using mobile voice, video or messaging. It also partners with mobile operators, who use its software to offer business-critical services to large companies.

In addition to Wavy and SAP Digital Interconnect, Sinch has made a couple of other smaller acquisitions this year, picking up Belgium’s Chatlayer, an AI-backed chat and voicebots platform, for €6.9 million ($8 million) and agreeing to pay 5.35 billion rupees ($73 million) for Indian cloud-based customer interaction services provider ACL Mobile.

This is a company that’s expanding fast. It may not yet be a household name, but it has been around since 2008 and and claims to have been profitable from the word go. It has big ambitions for further growth, so it’s understandable that Softbank wants in.

Just to be clear though, Sinch does not have the best part of $700 million burning a hole in its pocket.

The share issue will raise around SEK3.3 billion (or just under $390 million) before costs, most of which will go into Sinch’s M&A war chest. The firm issued 3.19 million new shares at SEK1,050 apiece, with Softbank’s wholly-owned SB Management unit – which manages a number of tech investments for the Japanese telco – taking 1.2 million of those. That’s a 5% discount on its weighted average share price but a premium of 1% on its closing price last Sunday. SB Management also picked up 5.2 million existing shares at SEK900 each, a price that perhaps suggests that those already involved in Sinch were pretty keen to have Softbank on board. That said, the fact that Sinch’s share price has grown five-fold over the past year might also have had something to do with it.

Keep an eye out for “further value creating acquisitions” and moves on the part of Sinch to broaden its shareholder base in the not-too-distant future.