Advanced acquires Computer Software Holdings for £110m

Published 08/03/2013 by Advanced, Editor

Advanced, a leading provider of healthcare and business management software and services, today announces that it has acquired Computer Software Holdings (CSH) from HgCapital LP (HG) for £110m in cash. The transaction has been financed through Advanced's existing cash resources, by a recent share placing that raised £44m (gross), and by new bank debt.

CSH is a leading provider of accounting and back office software to the UK professional services market (legal and coroners) and Customer Relationship Management (CRM) software for the not-for-profit (NFP) market. It also provides accounting software to SMEs, as well as mobile solutions for field services operations.

The acquisition marks the group's biggest deal to date and will enlarge. It is highly cash generative and will be immediately earnings enhancing.

CSH has strong recurring revenues and cash generation and proprietary software IP. The addition of this business will enable Advanced to widen addressable markets and, in particular, to grow back office solutions capabilities. Advanced will be highly cash generative with over £160m recurring and repeating revenue.

"The acquisition also provides multiple opportunities for cross-selling the growing portfolio of products and services, as businesses and organisations increasingly seek technology solutions to improve business performance and deliver economies."

Advanced has published separately today a trading update for the year ended 28 February 2013. Revenues from continuing operations are expected to be up 21% to no less than £119.0m (2012: £98.2m) with adjusted EBITDA* up 10% to no less than £26.6m (2012 £24.1m). Cash conversion** remains strong at over 100%. See separate statement for the full trading update.

The enlarged Group is expected to deliver pro forma*** revenue of £193.2m for the year to 28 February 2013, of which £160m is recurring (contracted and repeating), and adjusted EBITDA of £42.3m.

Acquisition highlights

  • Significantly enhances Advanced's position and scale in its Business Solutions and Managed Services divisions
  • Strong recurring revenue and cash generation with proprietary software
  • CSH and its markets well known to Advanced's management
  • Cash consideration of £110m funded through Advanced's existing cash resources and new bank debt:
    • Recent placing raised £44m (gross)
    • New £105m bank facility with HSBC, RBS and Silicon Valley Bank

CSH

  • Revenue of £61.5m and EBITDA of £13.2m for the 12 months to 31 December 2012
    • 85% recurring revenue (contracted and repeating), of which £40m is contracted recurring revenue with a further £12m of non-contracted repeating revenue
  • Leading software provider of
    • Accounting, back office, and document management systems to the UK legal sector
    • CRM systems to the UK NFP sector
    • Mobile technologies to the commercial (non-healthcare) field services sector
    • Significant provider of accounting systems to SMEs
  • Approximately 650 employees with offices across the UK, USA and Ireland, serving 12,000 customers

Enlarged Group

  • Pro-forma*** revenue to 28 February 2013 is expected to be approximately £193.2m, including £160m of recurring revenue (contracted and repeating)
    • Anticipated percentage revenue split between divisions: Health & Care 14%, Business Solutions 64% and Managed Services 22%
  • Pro-forma adjusted EBITDA, including £1.4m of early cost savings, is expected to be approximately £42.3m
    • Anticipated percentage EBITDA split between divisions: Health & Care 18%, Business Solutions 68% and Managed Services 14%
  • Approximately 1,900 staff serving 20,000 customers across the UK, USA and Ireland
  • A further £1.0m of cost synergies targeted within 18 months
  • Significant opportunities for cross-selling products and services including managed services, time sheet billing, mobile, CRM, document management
  • Opportunities for growth in Professional Services, Mobile Field Services and NFP sectors
  • Net debt of £65m at date of acquisition with strong cash generation profile

Rationale for the acquisition

The acquisition of CSH will be earnings enhancing and represents a strong fit with Advanced's growth strategy, both operationally and managerially. CSH has high recurring revenues, proprietary software, strong cash generation and complements Advanced's existing divisional structure whilst enhancing its customer base and increasing its range of addressable markets.

The acquisition will substantially strengthen and increase the scale of Advanced's Business Solutions and Managed Services divisions and brings assets and offerings that are well known to Advanced's management team. CSH also brings a range of complementary products and market opportunities. It will extend the reach of Advanced's products and services further into the SME market as well as extending Advanced's capabilities into new markets including the professional services and NFP sectors.

Advanced will have a customer base of some 20,000 customers. There will be significant opportunities for cross-selling products and services including managed services (Cloud), business analytics, CRM, document management, time sheet billing, data migration and mobile solutions.

Advanced expects to realise rationalisation savings in the order of £1.4m and other cost synergies of £1.0m, both on an annualised pre-tax basis.

* Adjusted EBITDA is defined as profit before interest, taxation, depreciation, amortisation of acquired intangibles, acquisition costs and share based payments
** Cash generated from continuing operating activities as a percentage of adjusted EBITA
*** Proforma numbers comprise the expected results of ACS as stated in the trading update for the year ended 28 February 2013; the results of Fabric Technologies (acquired in March 2012) and Serco Learning (acquired in December 2012) for the pre-acquisition period; and the results of CSH for the 12 months ended 31 December 2012