GB Group swoops to acquire PCA

GB Group shares rarely look cheap; so this earnings enhancing deal and oversubscribed placing will help keep investor interest high.

 GB Group swoops to acquire PCA

Having reassured the market last month about its performance for the year ended in March, GB Group (AIM: GBG) has announced a significant acquisition and a placing.

ID expert

The identity data intelligence expert is making the complementary acquisition of PCA Predict, which is a leading UK provider of address validation services. It has over 9,000 customers, mainly in the SME market which it provides with a self-serve, easy-to-use, cloud-based software platform. Typical users are e-commerce companies who use the service to populate the full customer address fields at the checkout when a postcode is entered.

Synergies

GBG’s core offerings tend to be high-end, data-rich services aimed at larger enterprise customers. Rather than cloud-based SaaS products like PCA Predict, they are installed on-premise and tend to solve compliance problems rather than improve customer relationship management. So there should be some cross-selling opportunities where these different client bases intersect. GBG can also take the PCA product overseas since the software is readily applicable to non-UK markets – management estimate the addressable market at a $1 billion. On the cost savings side there will be scope to reduce data provision fees.

Enhancing

The placing raised £58 million and was around twice subscribed. The rest of the £74 million purchase price will be paid in cash. The exit p/e looks to be around 17.5 times and the deal will enhance GB Group’s earnings by ‘high single digits’. Although it’s a relatively large deal for GB, PCA is UK based and in a very familiar field, so it shouldn’t be much of a distraction.     

Rarely cheap

As observed in our piece last month, GB Group shares seem to be breaking upwards after a lengthy sideways consolidation. The stock rarely looks cheap, so the earnings enhancement is welcome. On the new forecasts, the shares are trading on a current year p/e of 30.

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