StatPro has acquired Investor Analytics (IA), a US-based provider of cloud-based risk analytics solutions to hedge funds and asset managers, for up to $16m. IA’s Risk Factor and Monte Carlo models will enable StatPro to provide a broader set of risk models to its customers. The deal boosts the group’s cloud-based annualised recurring revenue run rate to 35% of the total revenue book, up from 27%, and strengthens the group presence in the important North American market (IA’s HQ is in New York). We continue to believe there is significant upside in the shares, given the lofty multiples of StatPro’s US-based financial software peers and SaaS companies.
StatPro is paying an initial $7m in cash, with a further $3m in deferred payments. This represents 2.0x FY15e revenues, which in our view looks attractive in relation to both the asset management software sector and SaaS business model valuations. In the 12 months to December 2015 IA generated $5m of revenues, of which 94% are recurring in nature. A further $6m is payable after one year, dependent on securing a number of new contract wins. We understand that IA’s small size was limiting its ability to expand the business, and becoming part of StatPro should resolve this issue. IA will be integrated into the StatPro Revolution platform, and StatPro anticipates that its existing equity focused asset management clients will wish to subscribe for the additional functionality. Further, we believe that IAs existing 53 clients, which are all new clients for StatPro, could be interested in Revolution’s Performance and Attribution features. IA generated an EBITDA loss of c $0.3m in FY15. However, StatPro believes it can achieve annualised cost synergies (including data feeds and administration services) of c £0.7m, and is therefore targeting EBITDA or £0.35-0.5m in the first 12 months after the acquisition. Exceptional cash charges of £0.7-1.0m are expected to be made, covering transaction fees and other one-off costs. StatPro has a small net cash position and so the transaction is being financed through its debt facility with Wells Fargo, which has been increased to c £24.5m, £17.0m of which is committed.
We will incorporate the acquisition into our financial forecasts after the forthcoming trading update. StatPro’s stock trades on c 31x our FY15e EPS, which falls to c 26x in FY16e (pre-deal). Alternatively, the shares trade on an c 1.6x FY16e EV/sales (we estimate c 1.7x on post-acquisition basis), one-third of the level of its larger US peers, which typically trade above 4.8x EV/sales, while US-based pure SaaS companies typically trade in the region of 4.0-6.4x EV/sales.
