GB Group buys into the US market
GB Group (GBG:AIM) 425p
Gain to date: 0.6%
Original entry point: Buy at 422.5p, 20 December 2018
Data security specialist GB Group (GBG:AIM) has struck a deal to buy IDology, a private US company which provides identity verification and fraud detection services.
GBG is paying an enterprise value of £233m which it is financing through a combination of £160m raised through a new share placing and £84m in debt from existing bank facilities.
The deal enables GBG to expand quickly into North America which is a key growth market.
Also, while its strengthens the UK firm’s product base, the IDology acquisition opens up ‘immediate up-sell opportunities’.
As IDology is unquoted there is no premium as such but in the year to December the US company generated earnings before interest, tax, depreciation and amortisation (EBITDA) of $16.3m.
This means GB Group is paying 18.5 times EBITDA for the firm which seems steep but it is a fast-growing business with an EBITDA margin of over 40%.
Management stress that IDology is ‘highly synergistic’ with GB and will add to earnings in its first full year as part of the group.
Shareholders seem to have taken the high multiple and the capital increase in the stride as the shares were barely changed at 425p on
SHARES SAYS: The acquisition price looks a bit excessive but strategically this looks like a good move. Stick with the shares.