Acquires Allocation Network GmbH

QAD (QADA) has entered into an agreement to acquire Allocation Network GmbH, a provider of strategic sourcing and supplier management solutions, for €12 million ($15 million) in cash and up to €8 million ($10 million) in earnouts over the next three years. The acquisition bolsters QAD’s existing portfolio of integrated supplier management solutions focused on quality management, regulatory compliance and digital collaboration with a suite of solutions targeting direct spend for complex manufacturing environments. Specifically, Allocation Network addresses all aspects of supplier management, including qualification, classification, contract management, evaluation and development; manages the entire sourcing process from requisitions to awards; improves collaboration via an easily configured workflow engine; and supports several auction types. Similar to QAD, Allocation Network has a strong presence in the automotive vertical; however, the acquired company’s reach is largely limited to Germany. As such, QAD plans to leverage its global footprint and target existing customers, thereby enhancing its cloud growth.

Although details pertaining to Allocation Network’s financial were lacking in the announcement, the company was founded in 1998 and is also in the midst of transitioning to the cloud. Additionally, the acquisition is expected to close by year-end and will not have a material impact on near-term results. Considering these factors, we believe Allocation Network’s revenues are likely in the single-digit millions and the multiple paid (excluding any potential earnouts) was attractive and below the valuations typical of SaaS acquisitions. Of course, achieving the cloud bookings targets underlying the earnouts would raise the implied valuation, although the boost to cloud revenue would be well worth the trade-off, in our opinion. All that said, with the small revenue base at present and acquisition accounting further reducing the amount of recognizable revenue in the first year, we are not revising our estimates at this juncture. Our price target also remains unchanged at $68.00, representing a FY ’22 EV/Sales multiple of 4x.

Our report with model and disclosures is available here.