TeraGo divestiture positive for company: Analyst

A Canaccord Genuity analyst says TeraGo Inc.’s divestiture of its cloud and colocation business lines to digital asset miner Hut 8 is a positive financial and strategic deal for the Toronto-based data services company. “On the strategic front, the transaction allows TeraGo to focus its attention squarely on its 5G rollout, with the additional cash helping to fund network development and expansion,” Aravinda Galappatthige wrote in a Thursday analyst note after the two companies announced the deal. TeraGo is expected to hold $17 million in cash, once the $30 million deal closes, putting the company in a net-cash position, Galappatthige added. Prior to the deal, the company held $20 million in debt and $7 million of cash. In a Thursday morning release TeraGo announced Hut 8 will acquire all of its cloud and colocation (the housing of privately-owned servers and networking equipment in a third-party data center) customers and employees along with certain contracts and intellectual property rights. In addition, the company will provide support and transition services to Hut 8 over the next few months. "TeraGo is uniquely positioned in Canada with our broad customer base for wireless services and our extensive millimeter wave spectrum licenses; this transaction will enable us to focus on leveraging these assets in our move to become Canada's leading provider of mmWave 5G private networks for businesses," TeraGo CEO Matthew Gerber stated in the release. In a separate Thursday release, Hut 8 added that the acquisition consists of five data centers across Canada, with more than 36,000 square feet of geo-diverse data center space, that includes a complete selection of scalable cloud services. “The acquisition of this complementary business diversifies Hut 8's operations with a discrete, steady cash flow, that is uncorrelated to digital asset mining. This acquisition also puts us at the forefront of the accelerated digitization of industry, establishing us as the bridge between traditional and nascent iterations of high-performance computing,” Hut 8 CEO Jaime Leverton stated in the release. TeraGo’s senior executives and employees in the fixed wireless access and 5G business line will remain with the company. Galappatthige said TeraGo management is likely to remain conservative with the development of its 5G network, “unless contacted specifically by customers.” It’s rollout plan is expected to begin in the first half of 2022 for TeraGo’s first group of customers, followed by a larger rollout in the second half of the year. The analyst added that TeraGo “had done a good job” with its colocation business during the 2021 fiscal year, with the average revenue per user having grown and subscriber losses having slowed down. “With that said, we believe that the colocation business was not necessary for the 5G rollout and, as such, management saw an opportunity to surface value and build its capital position,” Galappatthige stated. In November, TeraGo announced that it had entered into a partnership with McMaster University to build and deploy a 5G millimeter wave private network for research, the first university-based research network in Canada.

TeraGo divestiture positive for company: Analyst

Brief | January 21, 2022

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TeraGo divestiture positive for company: Analyst

Brief | January 21, 2022

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