Shares in content management and language translation software and services specialist SDL (SDL) sprang to life in early trade on Monday 16 July as the company unveiled what could be a very smart acquisition.
The UK company is buying US-based Donnelley Language Solutions (DLS) in a $77.5m deal, or about £60.1m in sterling terms.
The purchase implies a trailing enterprise value (EV) to earnings before interest, tax, depreciation and amortisation (EBITDA) of roughly 13.4-times, according to IT research consultant Megabuyte.
The deal will be funded by the drawdown of new debt facilities and a proposed placing of roughly 10% new shares at 440p.
That represents a very modest 0.8% discount to Friday’s 443.5p market closing price, which implies firm support for the deal.
The general market also seems supportive of the news, given how the shares rise nearly 4% in value to 460p.
WHAT IS SDL BUYING?
DLS provides content translation, creation and management services primarily to the financial services and life sciences sectors. The acquisition will bolster SDL’s market share in these segments to circa 30%, say analysts at broker Peel Hunt.
This makes sense as part of SDL’s stated attempt to drive up the value chain, and spread into newer high value markets spaces.
Its key skills and technology is very much pitched at highly complex segments such as scientific research, detailed legal papers and other confidential, sensitive and complex documentation.
That’s what differentiates it from the impressive but fairly mainstream translation engines developed by the likes of Google, for example.
SDL is still working through several years of business restructuring and has called in consultants from PwC to drive further cost efficiency initiatives.
Peel Hunt estimates pre-tax profit going from £22m in 2017 to £26.2m this year, expectations that SDL confirms today that it is on track to meet.
