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SSH COMMUNICATIONS SECURITY CORPORATION’S SUBSIDIARY KYBERLEIJONA ACQUIRES DELTAGON, A COMPANY SPECIALIZING IN SECURE MESSAGING

SSH Communications Security Corporation, stock exchange release, January 29, 2021, 1225 EET

SSH COMMUNICATIONS SECURITY CORPORATION’S SUBSIDIARY KYBERLEIJONA ACQUIRES DELTAGON, A COMPANY SPECIALIZING IN SECURE MESSAGING

SSH Communications Security Corporation’s subsidiary Kyberleijona Oy has agreed to acquire all shares of Deltagon Oy from Leijonaverkot Oy, a subsidiary of Suomen Erillisverkot Oy.

Background of the acquisition

The acquisition strengthens SSH’s position as a provider of secure networking and messaging solutions that safeguard key national cybersecurity interests and offer security-critical networking, encryption, and other solutions to the public sector in a coordinated manner. The acquisition also supports SSH’s aim to build a core national cybersecurity and cryptography competence center around its NQX business.

After closing, Deltagon becomes a subsidiary of Kyberleijona and part of the SSH group. SSH will consolidate Deltagon in its accounts as a subsidiary.

The acquisition is expected to close during the first half of 2021, subject to regulatory approvals and fulfillment of customary closing conditions.

Acquisition price and structure

The total acquisition price is approximately EUR 15.4 million. The cash flow impact of the acquisition price to SSH is EUR 10 million over the next four years.

The parties have also agreed on an earnout payment of no more than EUR 1.3 million, subject to certain conditions being fulfilled in the three year period after the acquisition.

About Deltagon

Deltagon Oy develops and sells secure messaging and transaction solutions to various industries, including finance and the public sector. A majority of Deltagon’s revenue is generated from the secure email messaging solution Sec@GW which is certified by the National Cyber Security Authority at the Finnish Transport and Communications Agency (NCSA-FI) for protecting classified information according to Finnish national (FI) ST III and ST IV security requirements.

The revenue of Deltagon Oy is estimated to be approximately EUR 4.7 million in 2020. Operating profit adjusted for calculatory intra-group service charges is estimated to be approximately EUR 2.5 million. The company has no debt apart from customary accounts payable and deferred liabilities items.

Deltagon’s business is primarily subscription-based, creating stable free cashflow. Because of the relatively small capitalization base, the free cashflow correlates closely with operating profit.

Deltagon’s revenue has grown steadily over the long term. The average growth for the past seven years has been 16 percent per annum, and the growth is expected to continue robustly.

Deltagon sells its solutions primarily through its partner network, which currently generates most of the revenue growth. Deltagon has more than 1,800 customers and several million end users globally. Deltagon has offices in Finland, Sweden, and Norway. The company has 26 employees.

A good strategic fit, synergy benefits, and increasing shareholder value

The Deltagon acquisition complements SSH’s product and services portfolio and creates synergies in product development, developing future quantum resistance, and leveraging international sales and marketing channels.

SSH is an international software and solution provider and Kyberleijona Oy is its subsidiary that helps secure national interests with both software and services according to the needs of the public sector. The acquisition strengthens SSH’s position as a provider of critical security solutions to the public sector and helps make SSH a strong key player in providing total solutions for secure communications from email communications and file sharing all the way to super-secure quantum-proof NQX network encryption.

With the acquisition, the SSH group gains new, profitably growing business with a strong position in the domestic messaging security market, new international business, and a wide customer base.

SSH’s CEO, Dr. Teemu Tunkelo, comments:

"This acquisition strengthens SSH’s product portfolio and helps us provide world-class total solutions for our customers to fulfill their critical cybersecurity needs. Deltagon’s Sec@GW product is a natural extension of our encryption product family, and the acquisition gives us access to further interesting products with international growth potential. I wish the entire Deltagon staff warmly welcome as a part of our high-quality cybersecurity software development and deployment team."

The CEO of Suomen Erillisverkot Oy, Mr. Timo Lehtimäki comments:

"This transaction supports our aim of guaranteeing secure, stable, and continuously improving communications and IT services in all circumstances for the public sector and safety-critical actors. SSH is a strong global company that can both satisfy domestic needs and grow the Deltagon business internationally. Furthermore, we have already worked together with SSH since 2018 with the Kyberleijona joint venture."

SSH’s CFO and manager of the encryption business line, Mr. Niklas Nordström, comments:

"The acquisition helps SSH become a one-stop-shop for encryption solutions for our customers, creating an excellent base for future growth. Deltagon’s customer retention is excellent, which also attests to the high quality of the products."

The acquisition of Deltagon complements SSH’s strategy of moving towards a subscription-based business model. This makes the business more predictable as the relative importance of the more volatile license sales decreases. After the transaction, approximately 70 percent of the revenue of the SSH group will come from recurring maintenance charges and recurring subscription revenue, and this proportion is expected to grow further in line with our strategy.

SSH will consolidate Deltagon into its balance sheet after the expected closing of the transaction during the first half of 2021. The acquisition is estimated to accelerate the revenue growth of SSH, and it is also estimated to improve significantly SSH’s operating profit and profit.

The acquisition is not expected to cause significant one-time integration costs or investments.

Deltagon key figures

The key figures presented below are based on non-audited accounts of the Deltagon business. They have been prepared in accordance with the Finnish Accounting Act and the FAS standard. They have not been adjusted for IFRS.

Revenue and operating profit figures for the year 2020 are based on estimates.

During the fiscal year 2019, the Deltagon business was consolidated into the Leijonaverkot Oy group balance sheet, and it did not carry a balance sheet of its own. The 2020 balance sheet figures presented are based on the balance sheet of Deltagon Oy, which was carved out from Leijonaverkot Oy at the beginning of 2021. These balance sheet items may change slightly, depending on the time of consolidation.              

 20192020
estimate
Revenue (EUR millions)4.344.69
Adjusted operating profit (EUR millions)2.272.50
Equity (EUR millions)-1.55
Liquid assets and receivables (EUR millions)-1.96
Short term payables and other debt (EUR millions)-0.42

A conference call on the acquisition will be organized for media, analysts, and investors on Tuesday, February 2 at 1000 EET. An invitation to the conference call will be issued separately.


SSH COMMUNICATIONS SECURITY CORPORATION


Teemu Tunkelo
CEO


For further information, please contact:

Teemu Tunkelo, CEO, tel. +358 40 5499605
Niklas Nordström, CFO, tel. +358 50 5410543

Distribution:
NASDAQ OMX Helsinki Ltd.
Major media
www.ssh.com


About SSH.COM
SSH.COM helps organizations access, secure, and control their digital core – their critical data, applications, and services. We have over 3,000 customers worldwide, including 40 percent of Fortune 500 companies, many of the world's largest financial institutions, and major organizations in all verticals. We are committed to helping our customers thrive in the cloud era with solutions that offer secure access with zero inertia, zero friction, and zero credentials risk. SSH.COM sells online; through offices in North America, Europe, and Asia; and through a global network of certified partners. The company's shares (SSH1V) are quoted on the NASDAQ Helsinki. For more information, visit www.ssh.com.


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