Elecosoft is a developer of on-premise and Cloud/SaaS software for the Architectural, Engineering, Construction and Operator (AECO) and digital marketing industries. Its award winning 6D solutions (>100,000 users) cover project planning, estimating, design/CAD, visualisation, site operations and Building Information Management (BIM). BIM acts as the essential lubricant to oil all the connecting parts.
M&A is a bit like panning for gold. Most prospectors lose money, but the successful ones do the homework, know where to look and crucially understand their markets inside out. Similarly, we think Elecosoft - following its transformational £2.4m acquisition of BIM (Building Information Modelling) SaaS provider, ICON back in October 2016 - has done it again.
Announcing this morning that it has purchased Shire Systems Limited, a leading UK computerised maintenance management software (CMMS) developer based in Southampton, for £5.1m on a cash/debt free basis. Corresponding to modest 2018 EV/sales, EV/EBIT and PE multiples of circa 2.5x, 6.5x and 8.0x respectively - compared to the sector on 3-5x, 15-25x and 20-30x
In our view, today's acquisition could ultimately generate synergies many multiples higher than the £5.1m price tag. Plus, we understand Shire has an impressive management team, which should assist the integration process, and longer term help shape the future direction of the business as a whole.
Regarding the numbers, Shire delivered normalised PBT of £0.7m in 2017 on turnover of £1.9m and YTD is tracking at a slightly higher run-rate of £0.4m and £1.0m for Jan-May'18. Consequently, given this and the newly increased debt facility (from £2m to an £8m, 5 year term loan with Barclays Bank), the Board believes the acquisition will be earnings enhancing in H2'18.
As such, we have upgraded our PBT estimates for this year and next to £3.4m (£3.3m before) and £4.0m (£3.8m) along with lifting our valuation from 85p to 90p/share.
