Whatever the relationship between the EU and UK on 1 January 2021, organisations will still need ways to manage the complex maze of bureaucracy and red tape.

AIM-quoted Ideagen  (IDEA:AIM) is a provider of governance, risk and compliance information management software tools to what it describes as ‘high consequence industries’.

In these industries, system and process failures can cost clients millions of dollars in fines and huge reputational damage, and potentially put lives at risk.

Ideagen’s markets span aviation, healthcare, defence, energy, banking and complex manufacturing, with blue-chip customers including BAE Systems (BA.), Royal Dutch Shell (RDSB), Transport for London, GlaxoSmithKline (GSK), Meggitt (MGGT) plus more than 150 hospitals in the UK and US.

For example, insurer Admiral (ADM) uses the company’s Pentana Risk tools to streamline its own risk management functions into a centralised, single source system.

Typically growing around 10% to 12% a year, Ideagen has super-charged that organic expansion with well-priced bolt-on acquisitions that expand the skillset, geographical presence or technology stack within its very focused niche.

This is how Ideagen achieves its target to double in size every three years and it is now in its next growth push to a £100 million revenue run-rate by the year to April 2022. Investors can expect this to continue, with the company last week raising nearly £50 million to fuel future opportunities.

SOLID ACQUISITION STRATEGY

Ideagen aims to buy businesses at a 10-times EBITDA (earnings before interest, tax, depreciation and amortisation) multiple post-synergies (i.e. all the savings eked out from a deal) while at the same time being valued at more than 20-times itself.

It’s worth noting that the recent cash call included a retail offer, showing that small investors matter to the company, not just the institutions.

The business issued an in-line first-half trading update for the period to 31 October 2020 highlighting revenue up 7% to £29.2 million driven by cross and up-selling its customer base, plus there were new wins within the healthcare, life sciences and financial services verticals.

The company reported adjusted EBITDA up 25% to £10 million, representing an impressive 34% EBITDA margin. Around 84% of revenues are on recurring contracts. This status justifies the April 2022 price to earnings multiple of almost 36. This should drop rapidly with future acquisitions not incorporated into current forecasts.

Profit and earnings are often heavily adjusted for amortisation and depreciation, and that may not sit well with all investors. But Shares has found the leadership team to be sensible and largely conservative and, reassuringly, operating cash flow is expected to be 90% of adjusted earnings in the half-year period just gone.

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