October Philly Software / SaaS & Tech Enabled Services Deals

Billtrust Goes Public via SPAC

Tom Paine

Software/SaaS companies are often selling for a premium now; enterprise software is particularly in demand. Others, smaller and less established, seek stronger financial or strategic partners. Some may desire to sell by year end, based on their expectations for the election or tax situations.

October was a busy month for Philadelphia firms.

Billtrust, a Lawrenceville NJ B2B payments firm, avoided the IPO hassles by pursuing a SPAC merger, and is now trading on the Nasdaq under BTRS. . Billtrust had an initial trading value of $1.3 billion, much higher than expected when it announced it was seeking a. buyer several. months ago.

AGI (Analytical Graphics), Exton, which tracks space junk, sold to Pittsburgh-based Ansys for $700 million, an impressive <9x its $80 million annualized sales. Ansys knows what to do with that type of engineering talent and it should be a good fit for both.

Wirecard NA, the former eCount and Citi Prepaid which somehow was able to immediately declare itself a free agent when its German parent collapsed, sold for considerably less than the $400 million initially expected.

Health Advocate, the somewhat smaller version of its Plymouth Meeting neighbor Accolade, sold to the French for $690 million. Accodade, post-IPO, now trades as ACCD on the Nasdaq with a market cap of $1.9 billion..

TargetX, a Conshohocken-based CRM product for higher ed built upon Salesforce, sold to Liaison.

Anexinet and Qlik both made interesting niche acquisitions.

Somewhat in this category as an ecommerce company, Nutrisystem sold for $575 million, down from $1.3 billion less than two years ago.  Kainos Capital was the buyer, assisted by MSD Capital, Michael Dell’s private family fund.

Was it the food?.

Questions from Accolade S-1

Tom Paine

See my previous post on Accolade’s IPO filing here.

Accolade, based in Plymouth Meeting and Seattle, submitted an S-1 to the SEC Friday (February 28) outlining plans for an IPO.

Conclusion: Some analysts probably have better information, but from info available to the general public it’s difficult to come up with an intelligent set of metrics for assessing its valuation. Not that it’s a unique case.

Accolade has raised at least $230 million in venture financing according to CrunchBase, and its last known valuation was $620 million according to Pitchbook.

It’s difficult to build a meaningful projected financial model for Accolade. Not enough history, and the economics are skewed by very large customers and high upfront development costs.

Its largest customers, Comcast Cable, Lowe’s and United Airlines, together accounted for 60% of its revenue for its 2019 fiscal year. Comcast alone represented 35% of its revenue for the year.

Customer concentration is a risk factor.

Accolade is not truly a tech company, but a technology-enabled health services company. No matter how much engineering it does, the variable people cost will still be there.

Some other health information companies that originally were full fledge tech firms are now adding more of the human factor in.

Hard to project future gross margins.

Adjusted gross margins were 30.9% in FY 2018 versus 36.4% in FY 2019; These will have to continue to improve..

Financial results for FY 2020 were left empty for now; looks like they might be filled in later (fiscal year ended 2/29)

Comparison: Perhaps the closest “twin” to Accolade is its Plymouth Meeting neighbor Health Advocate. It was snapped up by Omaha-based West Corporation for $265 million in 2014. Then buyout firm Apollo Global Management bought West Corporation (now Intrado Corporation) in 2017. Health Advocate has almost the same number of employees as Accolade, but I haven’t found any breakout of its financials.

Accolade relies on using AWS and Google Cloud for IT processing.