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ELMO share price on watch after Hero Brands investment

The ELMO Software Ltd (ASX: ELO) share price will be one to watch on Monday following a promising investment announcement.

What did ELMO announce?

This morning the leading cloud-based HR and payroll solutions provider announced an investment in Hero Brands Pty Limited.

According to the release, Hero Brands is a software development house headquartered in Melbourne with offshore operations based in Eastern Europe. Over the last 12 months the company has generated revenues of $3 million and is EBITDA neutral.

ELMO’s investment consists of a $1.18 million capital injection in exchange for 50% equity ownership. In addition to this, ELMO has agreed a contingent payment of $0.5 million payable subject to Hero Brands meeting performance hurdles.

Management explained that the investment provides ELMO with an increased research and development capability. It also gives the company access to Hero Brands’ high calibre software engineers.

ELMO’s chief executive officer, Danny Lessem, was very pleased with the investment in Hero Brands.

Mr Lessem explained: “We are delighted to invest and partner with Hero Brands. I have previously worked with the Vendor and know them well. Expanding our development capacity and capability will assist in delivering our long-term growth strategy.”

What else has been happening?

Last week ELMO held its annual general meeting and reminded shareholders of its long-term opportunity.

Having recently entered into the payroll and rostering/time & attendance market, management estimates that it has a total addressable market worth $2.4 billion per annum.

Mr Lessem appears confident that the company was well-placed to win a growing slice of this market.

He said: “The outlook for FY20 is exciting and builds on our FY19 investments and success. We will continue to target further investment to deliver long-term, sustainable growth. We expect to increase headcount and capabilities across research and development, sales and marketing and client services while also actively seeking strategic investment opportunities for complementary, adjacent technology or customer lists that provide cross-sell opportunities.”

“We are confident these investments will generate strong, long-term returns for shareholders as we take full advantage of the expanded view we now have of the market,” he concluded.

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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Elmo Software. The Motley Fool Australia has recommended Elmo Software. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.