CIBCEQUITY RESEARCH
March 22, 2022 Flash Research
CONSTELLATION SOFTWARE INC.
Topicus To Acquire Sygnity S.A.
Our Conclusion
Constellation owned Topicus.com announced its intention to acquire Sygnity
S.A. for ~$65 million. Sygnity is a publicly traded Polish IT solutions firm
providing digital transformation services to public and private sector
customers. We calculate that Topicus.com is paying 1.3x 2021 sales, slightly
above Constellation’s average multiple. We view Sygnity as a typical
Constellation acquisition - a relatively mature business, with a solid cash flow
profile.
Key Points
What Sygnity Does: Sygnity provides digital services to customers in a
number of verticals including banking and insurance, capital markets, public
administration, retail, energy, utilities and industrials. Within those verticals
Sygnity offers a wide variety of traditional digital transformation services,
such as customer experience improvement, omnichannel strategy, and
CRM/ERP integration. The company recently completed a four-year
restructuring, which refocused the business on financial market solutions
(capital markets/mandatory reporting) and energy (metering solutions).
Sygnity has begun to see the benefits of the restructuring, with low-single-
digit revenue growth in Q1/22. The restructuring has also resulted in an
improvement in profitability, with operating profits now in the mid-teens.
Transaction Details: The tender offer is being made a price of PLN 12.00
per share, valuing Sygnity at a total enterprise value of approximately US$65
million. The purchase price implies a multiple of 1.3x LTM sales and 5.5x
LTM operating profit. The PLN 12 per share offer price represents a 2%
premium to the last close, but a 33% premium to where the shares were
trading less than two weeks ago. The acquisition is expected to be
completed in Q2/22.
Constellation Has Spent Its Cash On Hand: Post the Sygnity acquisition
and the announced acquisition of AHLPP for $700 million ($670 million
upfront) earlier this month, we calculate that Constellation has used most of
its $760 million cash on hand. However, we expect free cash flow of ~$475
million in H1/22, suggesting that the company continues to have room for
tuck-in acquisitions without levering up. With the two announced transactions
in Q1, Constellation has invested in one quarter more than its annual M&A
spend in any year except 2021.