Enghouse Approached by Possible Targets, Eyes Europe: CEO

Enghouse Systems Ltd. (ESL), a Canadian software company that gets 95 percent of its revenue outside the country, has C$100 million ($91.1 million) cash available for acquisitions, as it hunts for purchases in countries including Germany and New Zealand.

“Opportunities are finding us and when I say there are about 10 at one time, that’s a lot for us,” Chief Executive Officer Stephen Sadler said in an April 9 telephone interview. He declined to give a price-target range for possible purchases.

“I have been told by financial institutions who talk to us all the time if we need money they are there,” said Sadler, who previously headed up Geac Computer Corp., once Canada’s biggest software maker, before it was sold to Golden Gate Capital for $1 billion in 2005.

Enghouse Systems, formerly called Engineering House, is looking to expand in areas where it already has a base of operations, such as Germany, Scandinavia, the U.K., Australia and New Zealand.

Since heading up the Markham, Ontario-based software and services company in April 2000, Sadler oversaw at least 20 acquisitions, including five in the fiscal year ended Oct. 31. Among those was Germany-based Andtek GmbH and more recently IT Sonix AG.

“When we do acquisitions we want a five- to six-year payback,” he said.

Pipeline ‘Strong’

About 38 percent of the company’s annual revenue comes from the U.S., followed by Europe at 26 percent, the U.K. at 23 percent, the Asia-Pacific region at 8 percent and 5 percent from Canada.

Enghouse is “good at utilizing their cash to buy things,” said Jason Donville, CEO of Donville Kent Asset Management, whose DKAM Capital Ideas Fund holds the company among its top five stocks.

While the pace of acquisitions may be “lumpy” at times, Donville said the company stands out for its high degree of recurring revenue and free cash flow.

Enghouse’s “pipeline remains strong, and competition in the $5 million to $50 million deal range is not as intense as for larger acquisitions,” Scott Penner, a TD Securities analyst, said in a March 6 note. He has a C$40 price target on the stock.

Enghouse fell 1.2 percent to C$31.99 at 4 p.m. in Toronto for a market value of C$834.5 million, and has fallen 2.8 percent this year. The stock has a 12-month target price of C$39.70 among five analysts surveyed by Bloomberg, a potential 24 percent appreciation. In 2013, the company’s shares gained 88 percent, its third consecutive annual increase.

‘Continuous Progress’

Sadler said he doesn’t mind being criticized for keeping money in the bank too long because he knows the company is in an enviable position amid the technology sector’s recent selloff.

“We aren’t the home run stock,” he said. “We aren’t zooming up. But if you look quarter after quarter, year after year we just make continuous progress.”

“If something negative happens it won’t impact us as much because half our revenue is recurring,” Sadler said. “We basically got half our revenue done for next year at the start of the year.”

To contact the reporter on this story: Stefanie Batcho-Lino in Toronto at sbatcholino1@bloomberg.net

To contact the editors responsible for this story: Brad Skillman at bskillman1@bloomberg.net Jacqueline Thorpe

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