- ReadyTech (RDY) is tapping investors for some extra funds to help buy software provider Open Office in a deal worth up to $72 million
- The company will cough up an initial $54 million in the deal, with another $18 million to be paid in two tranches based on future Open Office revenue
- Open Office provides software-as-a-service products designed to help manage local governments and streamline the court process
- ReadyTech says the buy gives it access into a new and attractive vertical
- To help fund the purchase, ReadyTech is tapping institutional investors for $25 million through a share placement
- The company is also planning a potential share purchase plan to raise $4 million on top of this
- ReadyTech shares are in a trading halt until next Monday, but last traded for $2 each yesterday afternoon
ReadyTech (RDY) is tapping investors for some extra funds to help buy software provider Open Office in a deal worth up to $72 million.
ReadyTech, which provides management software systems for the education and employment industries, went into a trading halt today as it announced the purchase deal to shareholders.
The company will cough up an initial $54 million for full control of Open Office, and another $18 million in earn-out fees to be paid in two tranches based on Open Office’s revenue over the next 4.5 years.
Why the buy?
ReadyTech is buying out both Open Office and its key business partner, McGirr, to expand the RDY business into government and justice sectors.
The companies up for grabs, collectively referred to as just Open Office, target these sectors with the software-as-a-service (SaaS) offering.
Specifically, they give ReadyTech access to asset management, payroll and human resources, and service management software specifically designed to target local governments, as well as software made to streamline and speed up the court process.
ReadyTech CEO Marc Washbourne said the buyout is a “strategically compelling” opportunity for the company and gives it access into a new and attractive vertical.
“Open Office is a high-quality business, providing solutions to 130 government and global justice clients, with a client retention rate of 95 per cent. It is a resilient market, with long-term government funding” Marc said.
“Gaining access to government and justice clients allows ReadyTech to unlock the potential of servicing a new market and adding a third pillar to our operations,” he said.
“We would leverage their experiences management team and capabilities to increase our market share in new markets.”
He added that entering this type of market requires the type of expertise for which ReadyTech is already renowned.
To make the purchase, ReadyTech will pay $54 million upfront in a mix of cash and scrip, with shares priced at $1.88 each.
The company will then have to pay out two tranches of $9 million each based on Open Office’s revenue performance over the next 4.5 years. The first tranche will be paid if Open Office can hit $18.26 million in revenue and $11.35 million in recurring revenue on a 12-month trailing basis.
The second tranche will be paid if these figures hit $22 million and $15.25 million, respectively.
These earn-out payments can be made in either cash, scrip, or a mixture of each.
Raising cash
To help fund the purchase, ReadyTech is tapping institutional investors for $25 million through a share placement. As with the purchase price, all new shares under the placement will be priced at $1.88.
On top of the placement, ReadyTech has flagged a potential share purchase plan to be launched in 2021 at is completes the Open Office buyout.
While there is no guarantee this purchase plan will go ahead, ReadyTech said if it does, the company will be seeking $4 million through the plan.
Under the offer, retail shareholders will be able to subscribe for up to $10,000 worth of new RDY shares.
With ReadyTech shares in a trading halt until Monday, November 9, however, it’s not yet certain exactly how investors will react to today’s news. RDY shares last traded for a flat $2 each yesterday afternoon.