Quarterhill Inc T.QTRH

Purchases of ETC and TransCore

[mrmoribund]

It's interesting to look at these side by side.

A few days ago it was announced that ST Engineering of Singapore is buying TransCore, a major US tolling / ITS company. Here are some stats:

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TransCore (bought by ST Engineering):

Purchase price (PP):
US$2.68 billion

Projected revenues:
US$545 million

Projected EBITDA:
US$135 million

PP / projected revenues:
5x

PP / projected EBITDA:
20x

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ETC (bought by Quarterhill):

Purchase price (PP):
C$150 million

Projected revenues:
C$95 - C$120 million

Projected EBITDA:
C$12.5 - C$15.0 million

PP / projected revenues:
1.4x

PP / projected EBITDA:
10-12x

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Arguably TransCore should go at higher multiples to revenues and EBITDA because it's bigger and has higher EBITDA margins. That said, the difference in multiple to sales paid is big enough that it suggests Quarterhill did well. Also, that it's good ETC was bought before the TransCore deal happened. Post-TransCore-deal you have to think the price for ETC would have been somewhat higher.

So TransCore was bought for 20x the price, about 4x the multiple to projected sales, and a little less than twice the multiple to projected EBITDA. Looks good for Quarterhill.

But the most essential question is the levels of technology that each of the buyers got. I suspect that, technologically, ETC is every bit as good as TransCore. If not, it's surely pretty close.

If this is correct then Quarterhill got a terrific deal from a technological perspective and a fixer-upper from a sales perspective. Hence, ETC's hire this past week of a former Kapsch executive on the sales side. I'm sure this will open a lot of doors.

An enticing thought is that now, with the help of Wilan's 5G expertise and IP, ETC is now (or soon will be) even better technologically than TransCore.

Many here have commented that the market doesn't seem to "get" the value of Wilan. I'd suggest the possibility that the market is also not "getting" the value of this new combination of ETC, IRD, Sensor Line, and VDS.

Of course, Quarterhill now has to prove it. I doubt that "proof" will be in the upcoming Q3 release. But, I suspect, soon enough.

[v_guerriero]

This is what I've said in the past, getting to $100M EBITDA in ITS is the big prize As I've previously said, you can get half way there if ETC wins its historical rate of its current pipeline and IRD grows at market rate. Another 2 platform acquisitions like ETC gets you the rest of the way there. Thst gets you to - $15 stock price (at 15X).  Or a takeout price of $20 (at 20X)

[cabbieJBJ]

mrmoribund, excellent post. I don't think ETC is as much of a sales fixer upper as you note. No question TransCore has scale, which ETC is striving to attain. QTRH provides resources to go after the larger contract. The seasoned major account sales hire ex-Kapsch will help. Bringing in a new crop of analysts that know the ITS space has to remain a key marketing goal for QTRH. Of the current