As one of the ASX’s hottest tech stocks Aconex Ltd (ASX: ACX) has nearly tripled in value over just the course of the past year and this morning the business announced a $96 million acquisition to support future growth.
Aconex sells cloud-based software-as-a-service that helps construction companies administer and deliver complex building projects from start to finish across the spectrum of suppliers, contractors, designers, builders and project owners.
The company says it has over 60,000 user organisations and has delivered more than $1 trillion in project value across 70 countries. The potential acquisition of German cloud collaboration service Conject GmbH will deepen its European footprint, user network, product breadth and scale.
The attractions must be compelling to Aconex’s management who have agreed to pay $96 million for a business that generated just $1.1 million in EBITDA for the financial year ending December 31 2015.
That’s a multiple of around 87x trailing EBITDA, although the target did generate revenues of $36.1 million over the year, which means the acquisition price implies a trailing enterprise value of 2.7x revenues.
Acquisitions are traditionally sold to investors as a multiple of earnings, whereas this deal appears as though it is being sold on a multiple of potential earnings and Aconex will need to expand Conject’s skinny EBITDA margin of around 3% to justify the price.
It stated it expects to lift the EBITDA margin to 11%-16% in the near term and 20%-25% in the medium term, although even if the near term targets are achieved the price will still look on the high side in my opinion.
Shareholders are being asked to cough up a total of $120 million to help finance the deal, with an underwritten minimum price of $4.96 per new share. Eligible (retail) shareholders will also be given the opportunity to subscribe for up to $15,000 worth of new scrip.
Notably, the co-founders are also taking the opportunity to dump 10.4% and 11.9% of their own shareholdings respectively, following the recent release of shares from escrow.
Aconex is one of the ASX’s hottest stocks due to its global horizons, digital nature and market-leading products, although as always, investors must be sure to pay a reasonable price for even the best growth businesses and Aconex remains on a sky-high valuation.
The company is currently valued around $900 million, yet recently posted a half-year profit after tax of just $4.6 million on revenues of $55 million and for that reason I think its shares are too expensive at today’s valuations.