Descartes Systems Group’s (TSX:DSG, Nasdaq:DSGX) most recent acquisition isn’t its most important ever, but it does continue a trend of solid pickups and will increase the Waterloo company’s recurring revenue base, says Paradigm Capital analyst Gabriel Leung.
Yesterday, Descartes announced it had acquired Salt Lake City-based Customs Info LLC for a mix of cash and stock worth (US) $41.5-million net of working capital, plus potential performance-based consideration.
Descartes president and COO explained why the company pulled the switch on the deal.
“With highly recurring subscription revenues and close relationships with GTM system providers, Customs Info has been a high-growth, premium business and is the sensible platform for this expansion of the global logistics network’s utility and relevance to the shipper community,” he said. “As Customs Info continues to invest in expanding its market-leading trade data, currently covering over 160 countries, our immediate focus is to connect Customs Info to the GLN and broader Descartes community.”
Leung notes that Customs Info offers one of the leading online trade research tools and a SaaS delivered classification solution that is by multinational shippers who use it to build and maintain complex classification databases. Despite the lack of disclosure about its finances, this likely means the company is a higher margin business. His guess is that the company generates more than $3-million in EBITDA from about $8-million in revenue, all of it likely recurring, he says.
In a research update to clients this morning, the Paradigm Capital analyst increased his estimates “modestly”, but maintained his (US) $17.00 one-year price target on Descartes and his “Buy” rating. He derives his number by applying a 18x EV/EBITDA multiple to his expectations for the company’s fiscal 2016 earnings.