Attention growth investors, the Gentrack Group Ltd (ASX: GTK) share price has rallied 10% today.
Gentrack Share Price
Who is Gentrack?
Gentrack is a small-cap New Zealand software business. It specialises in developing software for utility providers and airports. Given it is a niche — but valuable — market, Gentrack's solutions are often deeply embedded in a company's systems and processes, meaning its revenue is typically very reliable.
What happened today?
Overnight, the $290 million company announced it had entered an unconditional agreement to acquire UK-based utility billing and information provider Junifer Systems for $68.5 million ($NZ 74.6 million).
Junifer provides solutions for 25 of the 50 biggest energy retailers in the UK and offers an efficient solution for new energy providers entering the market.
"We are delighted to bring Junifer and Gentrack together in the UK," Gentrack Chairman, John Clifford said. "The combined UK business, under the leadership of Junifer CEO Saul Nurtman, will be well positioned to continue to provide highly innovative and low risk solutions to UK energy and water utilities, and from that strong base to expand into new markets."
Under the terms of the deal, Junifer's three founders will remain with the combined business and receive new shares in Gentrack. An additional three executives will take an equity stake in the company.
"The acquisition of Junifer delivers us the full range of product functionality from SaaS billing for new entrant energy and water retailers, to cloud hosted and on premise solutions for the largest utility players," Gentrack CEO Ian Black added.
If the deal had been implemented at the beginning of its 2017 financial year, it would have been earnings per share accretive to the tune of 10%.
How Gentrack duped retail shareholders
Unfortunately, to fund the deal, Gentrack is issuing $32.6 million ($NZ 35.5 million) of new shares to a technology investment company HgCapital, which helped with the deal, and has shunned its retail shareholders. Gentrack will also take on debt and pay cash for the remainder of the purchase price.
HgCapital will own 11.4% of Gentrack following the deal and have one of its directors joining the board in April. About 74% of Gentrack's shares are held by the top 20 investors. However, despite being legitimate owners of the company, Gentrack's board has given no regard to the little guys.
I get it; it would be expensive to raise money from the ~1,800 shareholders who own less than $40,000 worth of shares. However, a renounceable rights offer would have been the fair way to raise money for all shareholders.
Buy, Hold or Sell Gentrack
Despite management's indiscretion with the capital raising, I think Gentrack has an excellent product and is well-run. And at today's prices, I think its shares are good value for growth and dividend investors alike.
