Lightspeed POS has been progressing nicely on their strategy to pick up niche solutions in new markets. Their latest success was the acquisition of Kounta, a cloud POS company out of Australia that focused on restaurants.
By the latest count Kounta had 7,000 locations and was breakeven at $6.4M of recurring revenue (as of June 30). Below are the economic details:
Founded in 2012, Kounta generated revenue of approximately USD $6.4 million in their fiscal year ended June 30, 2019. Lightspeed will acquire all of the outstanding shares of Kounta for approximately US$35.3 million in cash on closing and the issuance of 306,290 subordinate voting shares in the capital of Lightspeed, at a value of US $25.05 per share, subject to post-closing working capital adjustment. An additional US $7.5 million in deferred cash consideration along with the issuance of 299,692 subordinate voting shares in the capital of Lightspeed, at a value of US $25.05 per share, is payable to certain Kounta employees through October 2021, in each case if certain milestones, including the continued employment of those employees, are achieved by June 2020 and October 2021. An additional amount of US$3.4 million tied to a marketing alliance agreement is payable to one selling shareholder in three annual installments beginning on closing. The deal is expected to close before the end of the current month, subject to customary closing conditions.
https://www.prnewswire.com/news-releases/lightspeed-pos-inc-announces-the-acquisition-of-kounta-300941698.html
Here’s how this breaks down:
- 5.4x revenue as upfront cash payment
- 1.2x revenue in stock consideration
- 1.15x revenue in stock as an earn-out
- 0.5x miscellaneous marketing payout
All-in this deal was done at a revenue multiple of 8.25x. We would discount the earn-out and miscellaneous marketing payment, which lowers the deal to a little less than 7x revenue.
This is a great win for Lightspeed, who trades at a roughly 20x trailing 12 months revenue multiple. Applying some of their processes will effectively get them to a 3x valuation on this purchase through multiple arbitrage over a quarter or two – bravo.
But does this mean you can sell your company for the same amount of money? Some things to consider.
Recessions are generally preceded by peak deal flow. That’s because multiples are good and bankers are getting what they can while they can. We thought 2019 would have been a recession honestly – here’s a graph of deal flow that shows the past two downturns as well as the most recent M&A numbers for the last few years.
The WeWork collapse could be an early sign that we’re near the peak of this bull run. If nothing else we expect investors to swing the other way and start favoring profits over growth. If there’s a recession, expect multiples to pull back for three years. Make sure you have enough cash to weather the economic downturn that comes with a decent churn in business revenue – the restaurant market is 10% overbuilt at least, while retail is probably a little healthier.
Hope this helps.
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