The Computershare Ltd (ASX: CPU) share price is currently not moving because the shares are in a trading halt. It has announced a big acquisition.
What is Computershare acquiring?
Computershare, the company that’s involved in doing a number of administrative tasks (such as share registration) for businesses and individuals is making a US acquisition.
The company is going to buy the assets of Wells Fargo Corporate Trust Services (CTS), a leading US based provider of trust and agency services to government and corporate clients.
It’s going to cost Computershare US$750 million, which represents a price of 8.9 times the last 12 months of EBITDA (EBITDA explained), before synergies.
After including ‘stand up’ capital expenditure, regulatory capital requirements and full expected annual synergies, the acquisition price represents 5.9 times the last 12 months of EBITDA.
Computershare share thinks that investment in new technologies and product development could lead to US$80 million of pre-tax annual cost savings over a five-year period.
CTS has been operating in the corporate trust sector for over 80 years and is currently appointed to administer corporate trust services to around 26,000 mandates across a range of securities and bond issuances. Computershare said that it generates growing fee income and high quality recurring revenue streams.
How much will this boost Computershare’s earnings?
The company believes it will increase ‘management earnings per share (EPS
)’ by at least 15% when including the synergies.
Computershare also believes that based on ongoing organic growth and cost savings, there is a pathway for CTS to generate a return on invested capital (ROIC) of more than 15% by FY25.
Acquisition funding
Computershare said that the acquisition is going to be funded by a mix of debt and new shares. It’s launching an AU$835 million (US$634 million) capital raising which is an underwritten pro-rata accelerated renounceable entitlement offer with retail trading rights.
The offer price is $13.55 per new share, a 9.6% discount to the last closing price.
What’s the strategic thinking for the acquisition?
Computershare said that CTS is a highly strategic fit with Computershare’s existing Canadian and US corporate trust operations and its growth strategy. The combination is expected to accelerate Computershare’s position in the attractive US corporate trust market to a top four position.
With Computershare’s bigger scale, the acquisition will give the company greater exposure to the positive, long term structural growth trends in trust and securitisation products. Client deposit balances and money market fund balances of over US$60 billion will also transfer as part of the acquisition.
Summary thoughts
This seems like a solid acquisition by Computershare, it makes a lot of sense.
However, Computershare is still expecting management EPS to be down around 8% on a pre-entitlement offer basis.
I’m not sure if it’s worth taking up the Computershare offering, I don’t have a strong opinion about the business or the share price.
Before you consider Computershare, I suggest getting a free Rask account and accessing our full stock reports. Click this link to join for free and access our analyst reports.
