This is why the Hansen share price is rocketing on a big new acquisition

Hansen Technologies Limited (ASX: HSN) is buying Sigma Systems.

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The Hansen Technologies Limited (ASX: HSN) share price is up 19% to $3.67 after the software billing provider announced it is to acquire rival software provider Sigma Systems for an enterprise value around CAD$157 million or A$116.7 million.

The deal is being priced on an EV/ EBITDA multiple of 8.3x Sigma's calendar year EBITDA adjusted for the fact it capitalises (rather than expenses) research and development costs. This can have the effect of artificially inflating EBITDA at a software business as costs are not taken upfront, but capitalised over a number of years.

Hansen will fund the deal with a bank debt facility underwritten by RBC Capital Markets worth up to A$225 million.

Sigma currently has more than 70 enterprise software customers worldwide with 56% of its revenues from North America, 29% from EMEA, and 15% from the Asia Pacific.

The acquisition is expected to be earnings per share accretive in FY20 excluding amortisation of acquired intangibles which you'd expect given it's being funded by bank debt that will admittedly incur significant new interest costs.

However, the market has probably sent the stock higher this morning as Hansen's management has a good track record of completing acquisitions without diluting the share base or blowing up capital.

Arguably the stock was also undervalued at below $3 in recent months.

Tom Richardson has no position in any of the stocks mentioned. You can find Tom on Twitter @tommyr345 The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Hansen Technologies. The Motley Fool Australia has recommended Hansen Technologies. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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