Wednesday, 27 August 2008

COA Solutions announces annual results

Business application provider, COA Solutions, has announced its results for the year ending 31st March 08. Revenues increased 10% to £55.7m. Stripping out the effects of their purchase of Version One in 2007 would probably reduce organic growth to nearer 5%. Still pretty acceptable given market conditions.. EBITDA was up 24% at £12.4m – a pretty impressive 22% EDITDA margin. Order intake grew 41% which gives confidence for the current year. Indeed, I was pleasantly surprised to see that new software licence sales represented 29% of COA’s annual revenues. All important and predictable recurring revenues from maintenance and support represented 44% of revenues.

All this contributed to a positive cash flow movement of £8.1m. Since the year end, COA has completed the acquisitions of eProcurement company Belmin (Mar 08) and HR specialist ASR Computers (Apr 08).

Readers with their memory banks still intact will recall that COA rose from the ashes of Cedar which was ‘rescued’ by Jon Moulton’s Alchemy back in 2002. It is salutary to remember that Cedar at its height had a market valuation of over £1b but was bought by Alchemy for c£4m. Alchemy promoted Fiona Timothy to CEO and I’ve taken a very close interest in COA ever since. Fiona is now Chair of COA Solutions and Mark Thompson is MD.

COA has hoovered up a number of well known brands in the business application space. Starting with Elevon (who had bought Walker and QSP) in 2002 and, as the years went by, Open Accounts (COA is an acronym for Cedar Open Accounts), Goldenhill, OpenPeople, Strata and Version One in 2007 as well as the two 2008 acquisitions noted above.

Fiona Timothy tells me COA are on budget at the moment and aren’t experiencing anything like a slowdown. Indeed “the volume of leads is up dramatically”. Only observation was that maybe rather more people are getting involved in the decision making process which might slow things down a bit.

Readers should remember that COA gets 88% of its revenues from existing clients. As I have said on many occasions, this can be a great defence against any slowdown. New product to new customers is a difficult place to be right now. To use my housing analogy again, if house sales are down more people decide to spend money on home improvements. This can really benefit the likes of COA with an extensive and largely loyal customer base.

So what next for COA? In ‘normal’ times, one might see COA as an IPO candidate. Frankly, even in those ‘normal’ times I’d consider them still too small for the full gaze of the public markets. There seems to be little pressure from Alchemy to IPO and they are also supportive of COA’s ambitions. I think they’d back any sensible acquisition plans COA might put forward. But at some point an exit will take place. Clearly the most likely outcome now will be either a trade sale (afterall it’s the kind of company which, after Axon/Infosys earlier this week, might appeal to an Indian player!) or a secondary Private Equity deal (as in the Iris/CSG rollup by HG which was then ‘sold on’ to H&F last year)

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