Post by
Dogsbreakfast4U on Jul 05, 2021 8:37am
TD Note
Event
Yesterday, Absolute closed the acquisition of NetMotion.
Impact: NEUTRAL Strengthened competitive position. Through the acquisition, Absolute is now able to provide a complete IT view into the remote and hybrid worker through the provision of resilient network connections and endpoint protection. Absolute also stands to benefit from the increased interest in zero-trust network access (ZTNA) solutions that has been aided by the increase in (high-profile) cyberattacks along with the U.S. government's mandate to implement a zero trust architecture across all of its agencies (included in President Biden's executive order on improving the country's cybersecurity, which was signed on May 12, the day after the NetMotion acquisition announcement).
Significant financial boost comes with increased integration and financial risk. The purchase price of ~$340mm represents close to 60% of Absolute's market cap, with NetMotion's ~$60 million in LTM revenue and ~$18 million in LTM Adj. EBITDA representing ~52% and ~56% of Absolute's LTM revenue and Adj. EBITDA, respectively. Given the relative size of NetMotion (compared to Absolute), it faces the challenge of integrating the two sizable organizations that could require a significant amount of management's time and resources. As well, it is taking on a significant amount of leverage to finance the deal in the form of a $275 million term loan, with the net debt/Adj. EBITDA (LTM) ratio sitting at ~4.3x at closing. The relatively high interest rate on the debt (we believe LIBOR or the U.S. base rate + 600bps) we think is due to the initial high leverage levels and the limited time Absolute had to secure the debt financing during the sale process. With a sixyear term, Absolute has plenty of time to pay off the debt with its healthy FCF (we estimate ~$50-$60 million in trailing pro forma FCF) but we expect the debt to be (partially) refinanced with traditional and lower cost bank debt, likely in a year when we understand it faces a smaller prepayment penalty.
TD Investment Conclusion
We are maintaining our $22.00 target price, based on 22x our C2022 Adj. EBITDA forecast. We remain bullish on the stock given its strengthened competitive position, favourable industry trends, and discount valuation.
Comment by
retiredcf on Jul 05, 2021 9:01am
Also note that the target is US$22.00. GLTA