Nobelium Tech Corp takes first step in software-as-a-service roll-up strategy.
Published: November 9, 2016
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Trading Symbol: TSX.P: NBL
TORONTO, Financial Post / Barry Critchley | November 1, 2016 6:07 PM ET – NOBELIUM TECH CORP.
Think big and there’s more of a chance something will happen.
That’s the philosophy at Halifax-based Nobelium Tech Corp., a capital pool company that went public last April and which announced a proposed qualifying transaction this week.
“We believe there is an opportunity to create a more focused version of Constellation Software. There is a viable market that they do not address,” said John Varghese, Nobelium’s chief executive when announcing the company’s plans to purchase Hamilton-based Viziya Corporation for US$34 million. (Constellation, an investor favorite that on a total return basis has been almost a nine bagger over the past five years, has a market cap of $13.472 billion.)
Of the purchase price for Viziya, about one third will be contingent on the seller, which has operations in eight foreign cities, reaching certain performance targets. The rest will be paid up front. We were unable to reach John Vujicic, Viziya’s chief executive, who was in Australia on business.
Varghese, a veteran venture capitalist, said Viziya will hopefully be the first of many acquisitions by Nobelium in either the so-called Software as a Service (SaaS) sector or in other technology related segments. In plans to make those acquisitions in a variety of fields including health care; governance/compliance/security; asset-performance; sales management; fintech and IT services and provisioning. “Nobelium wants to become known as the SaaS buyer of choice in Canada,” said Varghese in an interview.
In an investor presentation Nobelium intends to take advantage of the gap “between legacy software consolidators and higher growth IPO candidates.” Ideally those acquisition candidates will have $3 million — $20 million of annual revenue with “moderate” growth prospects meaning annual revenue gains of 5 per cent to 20 per cent — characteristics that don’t make them candidates to be taken public. And it hopes to buy those companies for five-10 times EBITDA (or earnings before interest, taxes, depreciation and amortization.)
As part of a so-called roll-up strategy, Varghese has extensive plans: three acquisitions in its first full year and more than two dozen after five years. To get there — and the goal is 100 per cent ownership of each acquisition — Nobelium expects to outlay more than $300 million of acquisition capital — a combination of cash, vendor take back notes and shares of Nobelium.
If it all works work out as hoped, at the end of five years, Nobelium will have more than $200 million in revenue and $60 million in EBITDA.
In response to a question of how feasible is such a sustained burst of acquisition activity, Varghese said the pace is “achievable and conservative.” And besides, he says, Constellation buys about 30 companies a year.
In a good year it does more. Jamal Baksh, Constellation Software’s chief financial officer said: “We did 30 last year and have already closed more than 30 this year.”
In determining Nobelium’s niche, Varghese also looked at how and where other industry providers — Enghouse Interactive (market cap of $1.343 billion) and Solium Capital (market cap of $371 million) — operate. Those two companies trade “at healthy multiples despite relatively modest growth prospects,” he said.
Varghese’s immediate task is to convince investors to ante up $35 million to help fund the Viziya acquisition. Nobelium is seeking debt and equity.
Once that has occurred, Nobelium’s shareholders will decide whether to support the Viziya transaction. If the necessary financing is raised, the capital raising will close at the same time as the qualifying transaction.
SOURCE: Financial Post / Barry Critchley
For further information: John Varghese, Chairman & CEO, T: 416 865 1611