The proposed acquisition of BSM Technologies (BSM Technologies Stock Quote, Chart TSX:GPS) by Geotab is a fair one, but it is possible another suitor may emerge, says Laurentian Bank Securities analyst Nick Agostino.
On Monday, BSM announced that Geotab, in a friendly move that has full aproval of the board, had offered to buy it for $1.40 per share.
“This acquisition will allow BSM’s technology and know-how in important verticals like government and rail to be made available through Geotab’s cost-effective, reliable, scalable and secured fleet management platform,” Geotab CEO Neil Cawse said. “The government telematics markets are key opportunities for Geotab and the addition of BSM’s existing activity, level of knowledge and experience will not only benefit Geotab’s government customers but also our strong partner ecosystem that is focused on serving this vertical market. Our expanded team will further equip both Geotab and our network of trusted resellers with the tools necessary for future success in key growth areas including municipal, state and provincial government and the electric vehicle market.”
Agostino says the offer is being made at a reasonable multiple.
“With its 41% premium to Friday’s closing price of $0.99/sh, GeoTab is paying 16.7x NTM EBITDA and 2.4x recurring revenues,” he notes. “Among notable transactions in the asset tracking market over the last +3 years (pg. 2), on a recurring revenue basis the range has been 1.3x to +6x, with the low end defined by 0-10% sales growth and ~10 EBITDA margin companies, which defines GPS’s recent Q1/F19 results, making the take-out multiple reasonable in our view. The deal is slated to close in late Q2/19 (May/19 vote) subject to customary and regulatory closing conditions, and is not subject to financing. The deal already has 23% approval including Crescendo, Jamarant, PenderFund, and GPS management/board.”
But the analyst cautions that another bid is possible.
“The transaction includes a $3.5M termination fee (~3%), which adds an additional $0.04/sh to any potential superior offer,” he says. “We understand DDS Wireless has strategically coveted GPS as a go-public vehicle, and see potential interest from comparables (such as FleetComplete, Orbcomm, Trimble), data-hungry carriers (AT&T, Verizon) and PEs (which have participated in prior industry transactions).”
In a research update to clients today, Agostino moved his rating on GPS from “Buy” to “Hold”, while raising his price target to $1.40, from $1.30, implying a return of 1.4 per cent at the time of publication.
The analyst thinks BSM will post EBITDA of $5.8-million on revenue of $60.5-million in fiscal 2019.