Since Towergate acquired Open International, expectations have been raised over the value of insurance technology firms
The board of Software house SSP announced this week that it was in discussions with an unnamed potential buyer of the business.
It is no surprise that SSP is in the sights of a potential buyer. After Towergate’s acquisition of SSP’s rival Open International for a staggering £276m last year, the expectation was that other software houses would become targets.
SSP, which listed on the Alternative Investment Market in 2006, has produced strong results and it shares have, on the whole, performed well. In its first year on the Stock Market SSP’s share rose over 45% in value.
Profits in the first half of 2007 were strong, growing by 50% on the previous year, while revenues were up by a similar amount aided by its acquisition of Sirius.
The acquisition of Sirius was seen as offering SSP plenty of upside, expanding its product line and geographical reach. Sirius also had an operating margin of just over 10% compared to SSP’s 25% margin.
Recent months have seen SSP’s share price decline, falling from a high of over 155p to around 115p in April. It is likely that the fall in the share price prompted the move by the potential buyer, looking to take advantage of the cheap stock.
“In SSPs case [the price] would equate to a premium of 54 per cent on its current share price, and a total sale price of around 200m pounds.
In recent weeks, the share price has soared to over 165p, prompting SSP announced that talks had commenced but were at an early stage.
There has been plenty of speculation as to the potential buyer. SSP identified the company only as a financial buyer, presumably rather than a trade buyer, suggesting a private equity house.
The sticking point to any deal is likely to be the valuation. After Open International’s £276m price tag (roughly equating to a price/earnings ratio of 22), expectations have been raised that other software houses will be able to command a similar multiple.
In SSP’s case, this would equate to a price of around 240p per share, a premium of 54% on its current share price, and a total sale price of around £200m.
Would a buyer be prepared to pay such a hefty sum? In the post-credit crunch world such a valuation would seem extraordinary.
