Proactis Acquires Intesource

If you're a Proactis shareholder, you must be in a state of shock. Nothing much happens for years, then you get an acquisition (EGS) in January this year – and now there's another! UK quoted spend management firm Proactis announced yesterday that they’re buying Intesource, a US reverse auction provider. They have 25 clients, and deliver their product via a ' Software as a Service' route. As the announcement says:

PROACTIS Holdings PLC ("PROACTIS", the "Company" or "the Group), the specialist Spend Control software provider, is pleased to announce that it has entered into an agreement to acquire the entire issued and to be issued share capital of Intesource Inc ("Intesource") for $3.9 million, payable in cash on completion ("the Acquisition").   The net cash consideration is expected to be approximately $2.9 million as Intesource is expected to have approximately $1.0 million of cash at completion.

From a financial view, just like the EGS deal, it looks very strong for Proactis.

For the year ended 31 December 2013, the audited accounts of Intesource showed turnover of $5,026,000 on which it made an operating profit of $610,000. Gross assets at that date were $2,889,000.

So for all the hype around firms selling for 5 or even 10 times revenue, again they have picked up what looks like a solid business for less than one times revenue. They're paying $3.9 million, but there is a $1 in the Intesource balance sheet, so it is really only $2.9M. So that represents about 0.6 times revenue or a P/E ration of just 5 times pre tax profit..

Now of course this could turn out not so well. Intesource has been trading since pre 2000, so clearly something has held them back if revenues are still just at this level. Post-acquisition, clients might flee, or Intesource may have particular rain makers in the firm who don't hang around. And let's not get carried away, this is only a couple of million revenue business. But as a way of strengthening their market position in the US, whilst probably improving their financial position and ratings, as well, it looks pretty low risk for Proactis with more upside than down.

The Proactis share price was pretty static, perhaps surprisingly – I would have expected positive reaction. Rodney Potts, their largest individual shareholder is subscribing for £600K's worth of new shares, so them market may be digesting that small dilution as well as the acquisition news. But anyway, congratulations to the Proactis team. They'll be dancing in the streets of Wetherby tonight!

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