New rules aimed at curbing bank bonuses in Europe are a boon for Solium Capital Inc., whose shares have almost tripled this year on higher sales of software that manages employee stock options.
Chief Executive Officer Michael Broadfoot is considering tapping debt markets to spend as much as $60 million on an acquisition as Solium adds clients like Barclays Plc in the U.K., and Macquarie Group Ltd. in Australia.
“We realized that to be a dominant player in this niche we had to be good at acquisitions,” Broadfoot said in a telephone interview from Calgary, where the company is based. “We are trying to acquire wherever we can.”
Solium is riding a wave of rising demand from multinationals in cities like London, looking for technical help to negotiate new regulations on compensation packages. The European Banking Authority has until the end of the year to finalize limits on bonuses after the European Union agreed on new rules, which they argued would prevent risk-taking in the wake of the 2008 financial crisis.
Solium fell 2.3 percent to C$7.58 at 10:16 a.m. in Toronto today, bringing its gains for the year to 186 percent for a market value of C$352 million ($329 million). Solium reached a record high of C$8.20 on Dec. 19 in Toronto.
The U.K. market, where Barclays adopted the company’s stock-option management system last year, may be worth about $100 million, Solium Chairman Brian Craig estimated last year.
The European market for the software could be worth $500 million, and the U.S. market $1 billion, Pardeep Sangha, a Vancouver-based analyst with PI Financial Corp., said by phone on Dec. 19.
Broadfoot, who started Solium after a career in Alberta’s oil sector and is the largest shareholder, said he built his software over the past 12 years by tracking regulatory shifts in jurisdictions around the world, all of which are “trying to get their little tax bite.”
Compensation is getting more complicated as companies come up with new and more convoluted ways to pay their employees, Robert Young, a Toronto-based analyst at Canaccord Genuity Corp. said by phone Dec. 20.
Solium offers one platform that works across different jurisdictions, making it ideal for large, multinational companies, Young said. Solium’s revenue is forecast to rise to C$68 million this year, from C$27 million in 2010.
“They’re the only ones who can give you an instantaneous report for everything across all regions,” he said.
Young recommends investors buy Solium and has a 12-month target price of $9 for the stock. The stock has two other buys and one hold rating, according to data compiled by Bloomberg.
The company gets a revenue spike in the first quarter of each year, when bonuses are usually issued, Aaron Kabucis, a spokesman for the company said in an e-mail.
The Barclays deal was important because the U.K.’s second-largest bank by assets will use Solium’s software for its 10,000 staff before it offers it to its customers globally, said Broadfoot. Solium will pay the costs and take in the profits from software sold through the bank, he said.
A division of the bank that handles stock and rewards business provides corporate clients with Barclays-branded Solium software, said Louise Pancott, a spokeswoman for the bank, in an e-mail. She declined to comment further.
“We’re focused on very large companies because they have the most complex employee sets and the most complex plans,” said Broadfoot.
Solium is the dominant player in Canada, with 70 percent to 75 percent of the country’s top 100 public companies as clients. They’ve still got a lot of work to do to grab market share overseas, Sangha said.
“It’s not like U.K. and Australia are flying off the shelves,” Sangha said. “It’s still early days.”