PiteCo SpA (MI:PITE) is buying the principal assets of LendingTools (LT), a small, privately owned US payments software provider, for up to $14.5m in cash. LT operates in the niche area of “correspondent banking”, offering financial institutions an alternative to the Federal Reserve’s FedLine Advantage. The deal provides Piteco with an attractive route into the lucrative US market, which it plans to use to grow its core treasury software solutions. On our updated forecasts, EPS rise by 12-14% over FY17 to FY19. Given the attractive growth opportunities, strong cash generation and healthy balance sheet, we continue to believe the shares are attractive on c 14x our FY18e earnings.
Acquisition of US payments software provider
Piteco is effectively paying $13m for an initial 55% of LT, based in Wichita, Kansas, which has net cash position of c $2m. The acquisition has been structured to enable two executives with strong expertise in the field to take significant minority shareholdings. Piteco plans to increase its shareholding to 60% for up to an additional $1.5m over the next two years but has no current plans to lift its stake any further than that. LT generated revenue of $5m in FY16, operates in a growth market and offers EBITDA margins of c 35-40%. It has long-term contracts and relatively low churn rates, and 90% of its revenues are recurring in nature.
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