Kyberleijona Oy, a subsidiary of SSH Communications Security Oyj, has signed an agreement to purchase the entire share capital of Deltagon Oy from Leijonaverkot Oy, owned by Suomen Erillisverkot Oy.
The acquisition strengthens SSH’s position as a provider of cyber-secure network and communications solutions so that key interests related to national security can be secured and security-critical network, encryption and other regulatory solutions can be provided centrally. The acquisition also supports SSH’s goal to build a central national center of expertise in cyber security and cryptography around the NQX business.
Upon completion of the transaction, Deltagon will become a subsidiary of Kyberleijona Oy and part of the SSH Group. SSH will consolidate the acquired company as a subsidiary in the Group’s accounts.
The acquisition is expected to be completed during the first half of 2021, provided that regulatory approvals and standard terms and conditions for the completion of the transaction are met.
Purchase price and trade structure
The total purchase price is approximately EUR 15.4 million. The cash flow effect of the purchase price on SSH Corporation will be EUR 10 million over the next four years.
In addition, the parties have agreed on an arrangement whereby the buyer will pay an additional purchase price of up to EUR 1.3 million, provided that the conditions for the additional purchase price are met within three years of the transaction.
Deltagon Oy develops and delivers electronic communications and transaction security solutions for several different industries, from the financial sector to public administration. Most of Deltagon Oy’s net sales come from an e-mail encryption solution (Sec @ GW) developed for confidential e-mail communications, which has the approval of Traficom’s Cyber Security Center (NCSA-FI) for handling classified material (ST III and ST IV).
Deltagon’s net sales in the financial year 2020 are expected to be approximately EUR 4.7 million and the operating profit adjusted for deferred corporate administration service charges to approximately EUR 2.5 million. The company is debt-free, except for ordinary trade and other payables.
Deltagon’s business is mainly subscription-based and the free cash flow is thus steady and corresponds quite well to operating profit due to the small depreciation base.
Deltagon’s net sales have grown steadily over the long term. The average growth over the past seven years has been 16% per year and the growth rate is expected to remain good.
Deltagon sells its products primarily through its partner network, which currently accounts for most of the company’s revenue growth. Deltagon’s solutions are used by more than 1,800 customers and have millions of users worldwide. Deltagon has offices in Finland, Sweden and Norway. The company has 26 employees.
Good strategic fit and synergies as well as added value for shareholders
The acquisition of Deltagon complements SSH’s portfolio and enables synergies in product development, building future quantum sustainability and leveraging international sales and marketing channels.
SSH is an international software and solutions provider and CyberLion as a subsidiary that secures national interests with both software and services according to the needs of public administration. The acquisition strengthens SSH’s position as a provider of government solutions that require critical security solutions and makes the Group a strong, centralized supplier of complete communications solutions from e-mail and file sharing to high-security quantum-robust NQX network encryption.
With the acquisition, the SSH Group will acquire a new, profitably growing business with a strong position, especially in the domestic message encryption market, a growing international business and a very broad customer base.
SSH’s CEO Teemu Tunkelo comments:
“The acquisition strengthens SSH’s product portfolio, with which we aim to provide customers with first-class total solutions to their critical cybersecurity needs. Deltagon’s Sec @ GW is a natural addition to SSH’s secret product family, and with the acquisition we will also get other interesting products with international growth potential. I warmly welcome Deltagon staff as part of our high-level cybersecurity software development and implementation team. ”
Timo Lehtimäki, President and CEO of Suomen Erillisverkot Oy, commented:
“The acquisition supports our goal of ensuring safe, reliable and evolving ICT services for authorities and security-critical operators in all circumstances. SSH is a strong global player capable of both securing service development and domestic needs as well as growing Deltagon’s business in international markets. Working with SSH has also become familiar since 2018 in the Cyber Lion collaboration.
Niklas Nordström, CFO of SSH and Head of Cryptography, commented:
“Following the acquisition, SSH will be able to offer cryptographic products to its customers on a single supplier basis, providing an excellent starting point for future growth. Deltagon’s customer loyalty is at an excellent level, which is also a sign of a high-quality product. ”
The acquisition of Deltagon Oy supports SSH’s strategy in moving to a subscription-based business model, which will make our business even more predictable as the relative importance of license sales, which are less predictable, decreases. Following the transaction, it is estimated that more than 70% of SSH Group’s net sales will consist of ongoing maintenance revenues or order-based sales, and this share is expected to grow further in line with the chosen strategy.
SSH will consolidate Deltagon Oy in its balance sheet after the completion of the transaction in the first half of 2021. The transaction is expected to accelerate SSH’s revenue growth and is also expected to have a significant impact on EBITDA and earnings.
The acquisition is not expected to result in significant non-recurring integration costs or investments.