Acquisitions take time to bed in. Firms don’t usually buy bolt-ons and immediately see huge boosts to their growth. StatPro (SOG:AIM) appears to be taking that axiom very literally, announcing today that it has agreed to buy UBS Delta, the Swiss investment banking giant’s risk and analysis service. But the acquisition is to be ‘phased’ over three to five years as StatPro incorporates the asset into its flagship product, StatPro Revolution.
But despite Delta still operating under the UBS banner, all the revenue it generates from its clients goes to StatPro straight away, along with the costs. The market seems pleased with the announcement; StatPro is up by 10.6% to 99.5p.
Sanjay Jha, an analyst at Panmure Gordon, has revised the firm’s earning per share (EPS) from 3.9p to 5.1p for this year, a 40% increase. This would put the firm on a price to earnings (PE) ratio of 19.5-times.
The deal
In a slightly strange manner, StatPro staff will be operating the Delta platform from within UBS’s buildings. The firm’s chief executive officer Justin Wheatley says the aim is for the StatPro Revolution platform to reach ‘functional parity’ with UBS Delta, which is focused on front office operations, especially bonds.
When this parity is reached, Wheatley says the ‘old Delta’ will be closed down and the ‘new Delta’ incorporated within the firm’s Revolution platform. Asked if there’s any worries of clients leaving when the UBS label is gone, Wheatley says, ‘They’re not going to care as it’s effectively the same thing. I see no reason why the bulk wouldn’t convert to Revolution in due course as they need those functions.’
Makes sense
The market reaction to the deal seems justified, UBS adds lots of scale to the firm in terms of revenue and scope of clients. Panmure predicts an adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) increase of £2m to £2.5m in the first 12 months. Wheatley says ‘this is a stunning deal for StatPro.’
It will cost StatPro €13m over three years, with an initial payment of €8.7m. But it will increase the firm’s recurring revenue to over £53m. As UBS Delta is a cloud-based service delivered over the web it should be fairly simple to incorporate into StatPro’s Revolution technology platform (also cloud-based).
Shares reported that the firm had a painful transition to a software as a service (Saas) model a few years ago but Wheatley says those days of the share price ‘moving sideways’ are gone. If it can retain UBS’s clients after it drops the Swiss bank’s name, this could be a stock for the long term. But there’s a strong case to buy (as Panmure suggests) and hold for the five year ‘phase’ period.
