Tungsten acquires DocuSphere, raises more cash

Tungsten plc, the e-invoicing and supply chain finance firm that is building on the old OB10 business, announced a small but perhaps strategically important acquisition this week. The firm has conditionally agreed to acquire DocuSphere, a provider of accounts payable automation services, to bring additional strength to the Tungsten offering. Here is how they explained the logic.

Many companies require workflow and connectivity tools to support their invoice-automation initiatives, in particular when handling invoice exceptions and achieving straight-through processing. The combination of Tungsten's global supplier portal and e-Invoicing services with DocuSphere's workflow and connectivity technology will help companies streamline their accounts payable functions from receipt of e-Invoice to payment”.

Tungsten had previously partnered with DocuSphere earlier this summer and had signed at least one joint customer contract that we at are aware of. And it is not a huge deal given Tungsten’s market capitalisation is now at the dizzy heights of £340 million.

DocuSphere is US based, had $3.3MM of revenue in its 2013 financial year and posted a net loss of $400K that year. In the 12 months ending July 2014, it had revenue of $3.7MM, according to Tungsten. And they’re paying “$6.5m, subject to customary adjustments” plus another $0.5 M in 18 months time. So that looks like around 2x revenue – not bad when Tungsten’s valuation is over 10x revenue. And the market doesn’t seem to care too much about profit if Tungsten can show the sort of revenue growth that they are aiming for.

The acquisition is being funded by a share placing – not an open offer, but the firm aims to raise £12 million to fund DocuSphere and also to provide more working capital. That placing may slightly depress the share price (down a touch yesterday on the news but recovering today), but from a business point of view, this was an interesting part of their statement:

Tungsten Network has had a series of contract wins with major, multinational enterprises and governments. Several of these contracts have been ahead of the Company's expectations in both scale and the rate at which they have been signed. Investment is required from Tungsten to enrol these buyers and their suppliers, and to create the appropriate infrastructure to service these contracts; it is to this end that the Company has decided to raise an additional £7m to enable it to maximise the benefits to Tungsten from these opportunities”.

So that all sounds positive, with opportunities to convert these contract wins into real revenue and profit. But that still relies of course on Tungsten’s ability to turn good e-invoicing business into supply chain finance revenues – and we still need to see just how easy that will be. But for the meantime, this looks like a sensible and important acquisition in terms of Tungsten’s capability and positioning, and no doubt we will come back to it in more detail in the near future.

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