How Has Singapore Telecommunications Limited’s 2015 Trustwave Acquisition Fared So Far?

Back in 2015, Singapore Telecommunications Limited (SGX: Z74) splashed out US$810 million for a 98% stake in US-based cyber security firm Trustwave.

With the Trustwave acquisition, Singapore’s biggest telco took aim at the cyber security industry, a market that is expected to be worth US$27 billion by 2019. For context, Singtel made close to S$17 billion in revenue for its financial year ended 31 March 2016 (FY2016).

Singtel’s latest earnings report, for the quarter ended 31 December 2016 (the third quarter of FY2017), provided some insights on the progress Trustwave has made.

Securing its future

Singtel outlined its expectations for Trustwave during the acquisition. The telco expected the transaction to be positive on an EBITDA-basis (earnings before interest, taxes, depreciation and amortization) in the second year and to be earnings-accretive by the third year.

In the third quarter of Singtel’s FY2017, cyber security revenue was up about 10% to S$113 million. William Woo, Managing Director for Enterprise Data and Managed Services, commented on Trustwave’s potential in the earnings briefing:

“On Trustwave we see the opportunities in various segments.

So in the area of distributed enterprise where Trustwave is very strong in the US market and in our core market for Singtel, Optus in Australia, we are seeing good traction with a lot of distributed enterprises where we can introduce Trustwave services in those markets and we have seen early success.”

From Woo’s comments, it looks like Trustwave is tapping into Singtel’s market network to push its services. Woo added:

“So a lot of opportunities for us to work very closely with the Trustwave team to leverage the go to market access that Singtel has in this region.”

However, Trustwave’s growth is not exactly lighting up the market. Woo acknowledged that point with this comment:

“Trustwave is pacing market growth today and will continue to. I think your question is about how do we pace or grow the revenue faster in the market. Currently we are making a lot of investments in hiring more sales and delivery people, investing in the security operations center in Japan in the Asia-Pacific.

I think that will give us the capabilities to grow our business in the months to come. So that’s the current plan.”

To add to the above points, Trustwave recorded S$11 million in negative EBITDA for the third quarter and is not profitable yet. When asked about the potential margins for the business, Singtel’s chief executive, Chua Sock Koong, said:

“If you look at these margins, it’s very similar to the managed services. That’s what we’re offering here is managed security services, so the kind of margins, when we get to a steady state, is likely to be in the low teens.”

So, this is where things stand with Trustwave at the moment. The cyber security business is still in investment mode and it might take another nine months before we can see whether it is able to turn EBITDA positive. At the moment, Trustwave’s contribution to Singtel is small in the overall scheme of things.

If you'd like to keep updated on the latest company and stock market news, sign up for a FREE subscription to The Motley Fool's weekly investing newsletter, Take Stock Singapore

Also, like us on Facebook to follow our latest hot articles. The Motley Fool's purpose is to help the world invest, better.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.