Some lessons in M&A have to be learned the hard way; but once learned, can pay real dividends. Back in June 2001 the Orange rag quoted: “TfB today announced it had become the UK’s largest legal IT solutions provider with its purchase of Avenue Legal Systems…a combined turnover of over £12m…”. Somehow £5.4m + £6.3m in 2001 actually ended up making £4.6m in total in 2005. There was a mini recession in between, don’t forget. But all too often in M&A, 1+1=0.8; this was not the first time, nor was it the last.
A cursory glance at Tikit’s 2008/9 performance would have suggested they were in a similar pickle as adding £4.5m of acquired revenue to £28m overall failed to mask a decline in group sales of £3m+. But in fact TfB has been a gem for them, and a timely one. Profitability for TfB is now over £1.25m and this deal multiple of x6 is notable primarily for the fact that the deferred income ratio of TfB is 49% and rising. This means the TfB business is one of the most advanced in terms of subscription style revenues – as close to an SaaS business model as you can get. Visibility on future business, renewals and cash should be very high, and frankly Tikit got a business which would normally expect to command x9-12 profit multiples.
So well done Mr Hill and the Tikit team – the hard lessons of previous recessions have been nailed and the leadership position they craved 10 years ago is still within their grasp. When the smoke of battle has cleared 10 years on, it is worth noting that some one had the wit to focus not on compounding project revenues, but the quality of the recurring business and the driver that should be to profits; sadly it always takes longer than the 3 year plan requires.
Oh and by the way – Tikit just bought around £2m worth of additional time management revenues which will hopefully not be swallowed up by other revenue ups and downs by the end of 2011.
A cursory glance at Tikit’s 2008/9 performance would have suggested they were in a similar pickle as adding £4.5m of acquired revenue to £28m overall failed to mask a decline in group sales of £3m+. But in fact TfB has been a gem for them, and a timely one. Profitability for TfB is now over £1.25m and this deal multiple of x6 is notable primarily for the fact that the deferred income ratio of TfB is 49% and rising. This means the TfB business is one of the most advanced in terms of subscription style revenues – as close to an SaaS business model as you can get. Visibility on future business, renewals and cash should be very high, and frankly Tikit got a business which would normally expect to command x9-12 profit multiples.
So well done Mr Hill and the Tikit team – the hard lessons of previous recessions have been nailed and the leadership position they craved 10 years ago is still within their grasp. When the smoke of battle has cleared 10 years on, it is worth noting that some one had the wit to focus not on compounding project revenues, but the quality of the recurring business and the driver that should be to profits; sadly it always takes longer than the 3 year plan requires.
Oh and by the way – Tikit just bought around £2m worth of additional time management revenues which will hopefully not be swallowed up by other revenue ups and downs by the end of 2011.
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