$21 million payday for former Smart50 finalists Outware Mobile, as Melbourne IT snaps up majority stake

Outware Mobile founders Danny Gorog, Eytan Lenko and Gideon Kowadlo

Former Smart50 finalist Outware Mobile has sold a controlling stake in the $15.6 million app developing company to ASX-listed internet company Melbourne IT for $21.7 million.

Melbourne IT will acquire 50.2% of the shares in Outware Mobile, founded by Danny Gorog, Eytan Lenko and Gideon Kowadlo in 2009, with put and call options in place to give Melbourne IT the opportunity to acquire up to 100% of the company over the next two years.

Speaking to SmartCompany, co-founder Danny Gorog says the deal, which has been in the works for nine months, presents a huge opportunity for the two companies to take a further slice out of the local IT market.

“The two main things in IT at the moment are mobile and cloud,” Gorog says.

“We’ve done very well in the mobile market – we are one of the most dominant players in Australia and have worked on some of the biggest apps in the country,” he continues, referring to clients including Seek, ANZ and the AFL. 

“But when we think about the other half – the cloud – Melbourne IT have a really good track record in providing cloud solutions,” he continues.

Gorog says Outware Mobile, which has a compound annual growth rate of 70%, is “expanding as quickly as we can” and “hiring as rapidly as we can” to keep up with the current demand in the mobile market. He says the deal with give the company added resources.

“Talking to our customers, they say ‘cloud and mobile’ so we think the partnership made a lot of sense from a very high strategic level,” he says.

“What this partnership is doing is putting two best degree Australian business [together] delivering high quality software and cloud solutions for our enterprise customers.”

Outware Mobile is expected to contribute $3.1 million to Melbourne IT’s earnings before interest, tax, depreciation and amortisation, making the total transaction worth $67 million, with an EBITDA multiple of 8.6.

It’s the latest purchase for Melbourne IT, which appears to be on an acquisition spree, after purchasing web service provider AussieHQ from Michael McGoogan for $15.5 million in February, a business the Canberra entrepreneur started in his bedroom at age 14.

Gorog says it was Melbourne IT that approached Outware, after the two companies had previously worked together on various projects.

“We had worked with them in past and we really respected what they did and their capabilities and their values and their cultural identity aligned really nicely with us,” he says.

He says Melbourne IT was attracted to the mobile capabilities Outware offered its enterprise services team, a relatively new and quickly growing part of its business.

“I think they saw a maturity and level of sophistication in the way we run the business and delivered projects which appealed to them.”

“They are a large, publicly listed company, so it’s important to make sure any partnership is going to be a good one, so they did all their checks and balances and they were impressed.”

Gorog says nothing will change from an operations perspective, with the three Outware founders to remain in their current positions as directors.

“It’s very exciting, it’s very rewarding, it’s very humbling in its recognition we’ve built something of value,” Gorog says.

And while Gorog admits the partnership will make the make Outware a formidable competitor in the Australian software market, he says it’s not about being the biggest player.

“It’s not about size or figures, it’s about making sure we are working on projects that are really challenging us delivering great software,” he says.

Gorog says if business owners focus on building a strong business, rather than planning an exit, success will follow.

“I think sometimes when you’re starting a business you think about what an exit strategy looks like, but I’d be lying to you if I said it was anywhere near the top of my mind [when we started],” he says.

“We really enjoy what we’re doing and got excited about the space and went from there.”

“These opportunities come around occasionally and you investigate them and consider them, and when you think it makes sense you act on them.”