Civ
ica looks set to buy Corero Business Systems for £13m in a move that will extend Civica’s presence in the UK education SITS market and leave Corero focused on network security. The cash deal, which is done on a debt free basis, is still subject to shareholder approval but has the backing of Corero’s directors.
It’s good to see Civica back on the acquisition trail so soon after its change of ownership earlier this year (see Civica acquired by OMERS Private Equity). Corero Business Systems (CBS) supplies finance and business/learner management software to the education and commercial markets. For Civica it’s a bolt-on purchase that will strengthen its presence in the UK education market and is very much in keeping with its longstanding M&A strategy. CBS brings both IPR and an existing customer base of schools and colleges providing potential for the cross-sale of other products and services.
To us, the price seems fair. Assuming the deal goes ahead, Civica will pay some 2.2 times FY12 revenue for CBS, and more than eight times the division’s earnings before development costs, depreciation, amortisation, acquisition and restructuring costs. CBS had a PBT of $2.8m in the year to end Dec 2012 and gross assets at that date of $7m.
The disposal will leave Corero exclusively focused on network security, in line with the strategy it laid out last year. It will also mean Corero is loss-making in FY13 and FY14 as it invests the proceeds of the sale in the ongoing development of Corero Network Security’s ‘next generation’ products, which are intended for deployment in the cloud, virtual environments and larger scale networks. Whilst focus is good, putting all your eggs in one basket is not without risk and Corero will need to demonstrate quick returns from its investment in an increasingly crowded security market.