So far this year Crowd Mobile Limited has launched in Denmark, Turkey and the Asian markets. However the most recent partnership with Track Holdings appears to be the most significant announcement so far. As we have seen with companies such as G8 Education (GEM) or Greencross Limited (GXL), expansion through acquisition may result in higher funding risks, which may negatively impact the share price. Will Crowd Mobile’s aggressive growth strategy pay off?
On 10th June Crowd Mobile Limited (ASX:CM8) announced that it has entered into a Heads of Agreement to acquire Netherlands based Track Holdings BV. The agreement will see Crowd Mobile acquire 100 percent of Track Holding’s shares for AUD$26.7million, plus Net Tangible Assets for approximately AUD$5million and an earn-out to a maximum of AUD$6.7million. The transaction is set to be completed by August 2015 and is subject to due diligence, Share Purchase Agreement execution and funding.
Who is Crowd Mobile?
Crowd Mobile is an Australian technology Company focused on mobile software and services. The Company owns and operates a portfolio of trade marked software applications (“apps”) and messaging services for mobile devices, orientated toward the delivery of consumer advice. Founded in 2005, Crowd Mobile listed on the Australian Securities Exchange in January 2015, via a reverse merger with Q Limited. The company currently operates in Australia, New Zealand, United Kingdom, Ireland, Germany, Austria, Italy, France, Belgium, The Netherlands, Hungary, Portugal and Switzerland.
Crowd’s main asset is a portfolio of mobile software applications and massaging services oriented toward the delivery of consumer advice and entertainment. The portfolio has been developed since 2005 and is supported by an integrated cloud based management platform which allows the company to service user demands utilising ‘crowd sourcing’ techniques (“Crowd Mobile Platform”). Services provided by the Crowd Mobile Platform are “question and answer” orientated and in 2014 Crowd mobile charged customers for over 3.4 million questions. Internal testing of its technology has identified few capacity constraints to accommodate future growth. This is crucial as the Track acquisition will significantly enhance Crowd’s distribution capabilities, expanding its quantity of telco distribution capabilities by 170 percent, doubling its national market presence and increasing language compatibility by 60 percent.
And who is Track Holdings?
Founded in 2008, Tracks Holdings is a Netherlands based technology company focused on mobile software and services. The company currently provides product distribution capabilities via 140 carriers in 38 countries. Track is on course to generate its fifth consecutive year of increased revenue and earnings. The company specialises in seamless electronic mobile payment transactions (m-Payments), a customer acquisition platform to acquire, retain and manage customers, and a large global content distribution network, providing mobile content, entertainment and apps to consumers worldwide. In calendar year 2014 Track generated revenue of AUD$24.5million and EBITDA of AUD$13million.
What are the catalysts and hurdles of the acquisition?
Crowd Mobile has a market capitalisation of approximately $16.2million and in financial year 2014 the company produced revenue of $9.8million and EBITDA of $2million. Crowd’s existing operations have been largely based in Australia, New Zealand and Europe. The Track acquisition will provide immediate access to new Asian markets and South American territories. Immediate synergies will create the ability for Crowd to distribute its proprietary content through Track’s distribution channels and for Track to integrate its payment processing infrastructure across Crowd Mobile’s existing operations.
The acquisition is expected to accelerate Crowd’s growth strategy. Track is set to deliver its fifth year of earnings growth and is highly complimentary to Crowds underlying business. Track will expand Crowd’s distribution capabilities by increasing the number of carrier relationships and national markets. The delivery of Crowd’s proprietary content via Track’s distribution channels and sophisticated payment systems are expected to create significant synergies.
However what needs to be considered is that Track is a large acquisition for Crowd Mobile relative to its current operations and that does create integration and funding risks. The combined group will have a significant global presence and future expansion opportunities may be limited, which will increase the importance of market penetration for future growth. There is also no guarantee synergies targeted from the Track acquisition will materialise, which could jeopardise Crowd Mobile’s ability to generate returns sufficient to justify and service the required expansion of its capital base.
Overall Crowd Mobile does provide growing exposure to the market for mobile software applications and services. The company has a solid established income and is set to compliment this by increasing its growth potential through the acquisition of Track. The market has viewed the acquisition in a positive light so far as Crowd’s share price has increased significantly following the announcement and has maintained higher levels so far. The long-term outlook appears favourable.
|Tim Morris is Head Analyst at Wise-owl
Tim has conducted over 500 corporate valuations and appraisals, specialising in pre revenue assets and emerging markets.
Tim is Wise-owls specialist in equity analysis for Australian small and mid-cap companies across a diversified range of industries including resources, technology and financial services. Tim’s Equity Capital Market insights have been featured as part of a weekly column in The Australian, and regularly features on Sky News, CNBC, ABC, and Bloomberg TV.