ReadyTech Holdings Ltd (ASX: RDY) provides a software-as-a-service (SaaS) platform for a diverse range of applications. The ReadyTech share price will be on watch on Monday after the company announced a move to grow by acquisition. The company is currently in a trading halt while it makes announcements related to this acquisition.
ReadyTech has executed a heads of agreement and exclusivity agreement to acquire government-based software provider, Open Office. The deal is for an upfront consideration of $54 million and an earn out of up to an additional $18 million.
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Why will the ReadyTech share price be on watch?
Open Office is a leading government and justice case management SaaS provider with a customer base in Australia and the United Kingdom. It provides a platform to local and federal government for various applications including asset management, HR and payroll, community management, finance, and many other applications.
At present, ReadyTech provides services for student management, HR and payroll, and management of work pathways. Accordingly, the company believes that the acquisition is consistent with its strategy to acquire complementary technologies, thus providing it with the opportunity to focus on new and attractive verticals and target higher value customers.
The company will pay for this via a fully underwritten institutional placement for up to $25 million. This will be an offer with the ReadyTech share price at $1.88, a 6% discount to Thursday's closing price.
Management commentary
ReadyTech CEO Marc Washbourne said the acquisition opportunity is strategically compelling for ReadyTech:
Open Office is a high-quality business, providing solutions to 130 government and global justice clients, with a client retention rate of approximately 95%. It is a resilient market, with long-term government funding. 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.
The Open Office acquisition provides ReadyTech with an opportunity to secure a strong foothold into all levels of government in Australia, with the benefits of long-term, sustainable client base with strong barriers to entry. Entering a market of this type requires the type of expertise for which ReadyTech is renowned.
Trading guidance
Aside from the acquisition, ReadyTech has reaffirmed FY21 guidance, with Q1 trading in line with guidance assumptions. Revenue retention for the first quarter of FY21 is maintained at 95%. In addition, gross new business remained at $14 million and the company is investing in sales and marketing to drive top line revenue. The ReadyTech share price is currently up by 11.7% year to date.
