This morning, JTC Group (LON:JTC) announced that it has entered into a conditional agreement to acquire a business from International Capital Group. In summary:
The acquired business, Van Doorn, is a fast growing, boutique provider of corporate & related fiduciary services based in Amsterdam, the Netherlands;
- Initial consideration of €16m is payable 69% in cash and 31% in new JTC shares; any earnout is payable in cash during 2019 based on Van Doorn’s performance in the year ended 31 December 2018;
- In 2017 Van Doorn made €1.2m of EBITDA and normalised EBITDA for 2018 is expected to be c. €2.4m (i.e. max multiple is just under 9x EBITDA);
- JTC expects the acquisition to be immediately earnings enhancing and completion, subject to regulatory approvals, by October 2018.
Nigel Le Quesne, Founder and Group CEO comments that: “Van Doorn is a high-quality, fast-growing business that is an ideal bolt-on to our Institutional Client Services (ICS) Division and which strengthens and enlarges our Netherlands platform.” Importantly, he refers to the quality of the team: “The management team has built a successful business based on very similar principles to JTC and this deal allows Van Doorn to become part of a larger, established global network, while retaining its focus on sophisticated solutions and client service excellence”
Zeus view:
This acquisition fits with JTC management’s strategy of building on JTC’s Global Platform, which was set out at its IPO in March 2018.
The acquisition clearly adds shareholder value in that (1) there is a good cultural fit, (2) it doubles the size of the business unit in terms of professional staff and revenue, and (3) it improves JTC’s competitive position in an important jurisdiction.
Shareholders will appreciate that the Van Doorn acquisition should be immediately earnings enhancing. However, as the acquisition is conditional, our forecasts are unchanged until it completes. JTC reports its interim results on 18 September.
Valuation:
JTC at 374p a share, is trading on a current year PER of 22.7x and PEG of 0.93x, based on what we believe to be prudent forecasts. On a proforma basis we expect JTC’s current year PER to be c. 21.3x .
With prospects of additional inorganic growth, there are good reasons to see JTC’s share price rising further. Today’s announcement is a good example of the inorganic growth which JTC will deliver.
