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Archives > Transaction Case Study 65
SOKOLOFF & COMPANY CASE STUDY:
DATE ANNOUNCED: June 15, 2012
SELLER’S FINANCIAL INFORMATION AND M&A MULTIPLES
John Hawkins, chairman of Psion said “the directors are pleased to unanimously recommend this offer by Motorola Solutions at a price which offers a significant cash premium to both the current and recent market prices. The offer by Motorola Solutions provides Psion's shareholders with certainty in an environment where certainty is in short supply."
So why is Psion, which has twice the revenues of RuggedCom, selling for less than 40% of what Siemens paid for RuggedCom?
Two words – growth and margins. Psion’s revenues have been nearly flat for the last three years. RuggedCom has a five year CAGR 0f 39% (29% in 2011). Psion principally sells via resellers and integrators; the necessity of a middle man in the sales channel drives a lower Gross Profit Margin of 38.2%. RuggedCom has a direct to customer approach which supports a GPM of 58%-60%.
The contrast in valuation is symbolic of a tidal shift in business paradigms. In the age of the Internet and the resulting dissolution of old school purchasing relationships, more and more manufacturers are pursuing paths to sell directly to the end-user. Larger players like Siemens and Motorola are well along this path of direct sales, often to the detriment of long time reseller/integrator partners. Smaller companies, in need of market coverage and entrée to larger corporate customers, often build their businesses around a partner network, only to realize late in the game that partners are fickle and may not have the same interests.
Generally, a manufacturer who is dependent on a few large reseller partners is destined to see its GPMs fade and its sales growth impacted by conditions outside of their control. Thus, we tell the tale today of two companies… one commanding market-busting multiples, the other accepting of a more common exit.
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