Lo-Q Acquisition
Complimentary acquisition
Technology
In a potentially transformational deal, last week Lo-Q announced it is acquiring
10 December 2012
accesso, a profitable and fast-growing ticketing solutions provider, for £13.7m.
Price
accesso offers industry leading cloud-based ticketing solutions and has a c 36% share in the US theme park industry, according to Lo-Q. The acquisition significantly broadens Lo-Q’s offerings to theme parks and adds more customers in its traditional markets. Further, it widens the group’s customer base across a range of new verticals and significantly boosts Lo-Q’s presence in North America. On our forecasts, the deal is 7.5% earnings enhancing in FY13, and we see further upside from extending accesso’s products to Lo-Q’s customer base outside the US and through utilising accesso’s strengths to leverage the distribution of Lo-Q’s products in North America. Year end 10/10 10/11 10/12e 10/13e
Revenue (£m) 20.3 24.5 30.4 39.4
PBT* (£m) 2.4 2.8 3.3 4.5
EPS* (p) 12.0 12.1 14.0 16.3
DPS (p) 0.0 0.0 0.0 0.0
P/E (x) 28.4 28.1 24.3 20.9
340.5p
Market cap
£66m
Shares in issue Free float Code Estimated net cash (£m)
19.3m 73% LOQ 8.5
Primary exchange Other exchanges
AIM N/A
Share price performance
Yield (%) N/A N/A N/A N/A
*PBT and EPS are normalised, excluding amortisation of acquired intangible, exceptional items and share-based payments.
Acquisition of accesso CEO. The consideration consists of c $6.3m cash on completion, c 1.8m new shares
% Abs Rel (local)
vesting over three years and a c $6.3m loan note. Mr Brown will become Chief
52-week high/low
Operating Officer of the company’s North American businesses. Our understanding is
Business description
Lo-Q is acquiring accesso for $22.0m (£13.7m) from Steven Brown, Principal and
that accesso’s management team saw the benefits of working with Lo-Q in creating a stronger organisation and believed using Lo-Q’s global distribution network to extend the growth outside the US was much more practical than trying to do it themselves. Further, accesso’s team can lend its support to Lo-Q's North American business.
Implications and forecasts: A one-stop shop Along with its cloud-based ticketing solution, accesso also offers a fully compliant payments gateway, mobile apps and a customer support business. Therefore,
Final results
Analysts Richard Jeans Dan Ridsdale
revenue assumptions for the acquired business of £5.4m in FY13 and £6.0m in FY14, our group revenue forecasts rise to £39.4m in FY13 from £34.1 and to £41.1m in FY14. Our FY13 EPS moves up by 7.5% to 16.3p, while for FY14 we have 17.6p.
Valuation: New opportunities for global growth The shares trade on c 24x our earnings forecasts in FY12, falling to c 21x in FY13 and c 19x in FY14. While on the face of it this looks expensive, there are now a host of avenues for growth as Lo-Q positions itself to be a leading provider of solutions to the leisure industry worldwide. Further, there is potential for earnings upgrades from both Lo-Q’s traditional business, cross-selling and leveraging accesso’s products globally.
Lo-Q is a research client of Edison Investment Research Limited
12m 77.8 64.1
383.5p
189.5p
Next events
covering payment, ticketing, queue line management and content. As with Lo-Q, strong recurring revenues with transaction-based business models. Based on our
3m 4.9 2.6
Lo-Q designs, installs and operates virtual queuing systems that allow guests at theme parks and other attractions to manage their time effectively by making ride and show reservations without the need to wait in a physical queue.
following this acquisition, Lo-Q can now offer its customers a complete solution, accesso is a seasonal business, but its ticketing and payments solutions provide
1m (0.6) (2.6)
12 February
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Lo-Q | 10 December 2012
Acquisition of accesso Lo-Q has acquired accesso from its CEO, Steven Brown, for $22m. The consideration consists of c $6.3m cash on completion, c 1.8m new ordinary shares vesting over three years and a c $6.3m loan note. Lo-Q plans to refinance the loan note with a bank loan in the short term. The $9.3m equity component of the deal vests over three years, essentially tying in Mr Brown for at least three years. We believe Mr Brown’s primary reason for wishing to combine accesso with Lo-Q was because accesso was entirely US-focused and it needed an avenue to grow internationally and Lo-Q provided a perfect fit to achieve this objective. Lo-Q has known of accesso for some time as accesso provides ticketing to Lo-Q’s biggest customer, Six Flags. Mr Brown, who spent 16 years with the Walt Disney where he held executive positions as Director of Walt Disney World Ticketing and VP of Revenue Management for Disneyland Resort, will join the Lo-Q board and run the group’s North American businesses. Based on our forecasts, the deal is priced at c 2.3x FY14 revenues and 11.9x EBITDA. While this looks pricey, the business has been growing very quickly and Lo-Q provides a clear strategic roadmap to extend the growth opportunities. We also note that Lo-Q was able to complete this deal without the recourse to equity finance because of its strong balance sheet and healthy cash flows.
Background on accesso Founded in 2008, accesso is based in Lake Mary, c 15km north of Orlando, Florida, and its core product is its accesso Passport , offering ticketing and commerce solutions tailored for on site, the internet and mobile phones. The solutions are cloud computing-based, multi-tenanted, meaning there is a single version of the software for all customers. The attraction of a cloud-based solution is it can be implemented swiftly, updated regularly without interruption to customers and there are no infrastructure costs for the customers. We understand that none of accesso’s key US competitors can offer a cloud solution on the scope or scale of accesso's offering. Revenues are largely generated from the volumes of transactions, contracts are typically at least three years and we note accesso’s customers have been very stable. Management believes the onsite ticket office is in decline as tickets are increasingly being purchased before guests arrive at an attraction. Mobile is increasingly becoming the preferred payment mechanism, driven by 4G and LTE mobile technology and accesso’s cloudbased solution is strongly suited to this backdrop. accesso also offers a proprietary PCI Level 1 payment gateway, providing its customers with a mechanism to manage payments from their customers. This also operates with a transaction-based business model. The company also offers mobile apps for its customers, which typically enable users to plan their trip, buy tickets, find locations (eg, restrooms, restaurants) and share their experiences on social networks. Finally, accesso offers multi-lingual customer support, utilising a call centre in Canada, which helps users with issues, for example when someone is having trouble buying a season ticket. accesso has grown strongly since it was founded in 2008, expanding from five customers with 29 venues in that year to 29 customers with 106 venues in 2012. accesso generated revenue of $5.65m in the year to December 2011, of which the bulk was in ticketing, and most revenues are generated over the summer months. During 2012 the growth has been c 40%, after the company more than doubled its customer base in 2011, which includes the major theme park operators Cedar Fair Entertainment, Palace Entertainment (owned by Parques Reunidos) and Herschend Family Entertainment. accesso also has customers in other verticals including zoos, motor racing and single line attractions such as the Seattle's iconic Space Needle.
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Lo-Q | 10 December 2012
When combined with Lo-Q, accesso’s c 45 employees will take the Lo-Q group total to c 105 full time staff along with c 900 seasonal workers.
Key attractions of accesso to Lo-Q We highlight the following points:
People. Lo-Q was particularly attracted by the strong management team at accesso and what LoQ describes as an “outstanding team of people”. Clearly it believes there a strong cultural fit. Interestingly, Mr Brown along with Janel Pisorchik, VP of Business Operations and TJ Christensen, VP Business Development, all have backgrounds which include Walt Disney Parks & Resorts. Mr. Brown also served as an executive for Six Flags. Further, accesso has a highly skilled team of software engineers and operations team members that are experts in the attractions space.
Product differentiation. Lo-Q believes accesso is ahead of the curve, given its experience in the delivery of cloud services, while its main competitors are struggling to adapt their traditional business models to the cloud. We note that cloud solutions are highly scalable, easy to implement and enable the vendor to provide regular updates seamlessly over the internet.
Customer relationships. Lo-Q believes the acquisition will deepen its customer relationships, particularly with important “top 10” theme and water park operators. We note that being based near Orlando, Florida, could be particularly helpful in building relationships with the large local theme parks. We also note accesso has a strong customer services culture.
Synergies. There are clearly strong benefits to be had in offering multiple solutions especially given the premise of industry convergence to mobile-based solutions.
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Lo-Q | 10 December 2012
Forecasts: accesso incorporated, the rest is broadly unchanged We assume that accesso contributes £5.4m of revenues in the 11 months to October 2013, noting that the period missed in Lo-Q’s FY13 is a relatively quiet period. We assume that revenue rises to £6.0m in the full FY14. In all, the group revenue rises to £39.4m (from £34.1m) in FY13 and to £41.1m in FY14 as we introduce our FY14 forecasts. Adjusted operating profit rises to £4.6m in FY13 (£3.6m) and to £5.0m in FY14. We assume a £130k net interest expense in FY13 (£100k credit), to reflect the £4m bank loan replacing the loan note. We have also increased our tax charge forecasts to reflect the higher US corporate tax rates. Our FY13 EPS rises by 7.5% to 16.3p, while FY14 rises to 17.6p. After adjusting for c £400k of costs relating to the acquisition and an additional c £400k of capex in FY13 relating to park rollouts at Lo-Q’s existing operations, we forecast a net cash position of £2.5m (£10.7m) as at end October 2013, rising to £5.9m a year later.
Exhibit 1: Forecasts Revenues (£'000s) Theme parks - Total rental method Water parks - Total rental method Theme parks - Proportionate rental method Water parks - Proportionate rental method accesso Group Revenue Growth (%) Gross Profit Gross margin (%) Op expenses (before devt costs) Capitalisation of dev costs (net) Adjusted operating profit Operating profit margin (%) Growth (%) Net interest Profit before tax norm Share based payments Exceptional items Profit before tax Taxation Net income Adjusted EPS (p) P/E - Adjusted EPS
Dec 2009
2010
2011
2012e 24,539 4,870 1,002 8
17,295 27.9 4,142 24.0 (1,889) 167 2,420 14.0 31.2 10 2,430 (42) 0 2,389 (494) 1,895 12.4 27.4
20,304 17.4 5,042 24.8 (3,014) 328 2,355 11.6 (2.7) 7 2,363 (42) 0 2,321 (448) 1,873 12.0 28.5
24,546 20.9 6,118 24.9 (3,398) 44 2,764 11.3 17.3 35 2,799 (97) 0 2,702 (761) 1,941 12.1 28.1
30,419 23.9 7,016 23.1 (4,186) 468 3,298 10.8 19.3 50 3,348 (100) 0 3,248 (909) 2,339 14.0 24.3
2013e 26,581 6,041 1,392 48 5,363 39,425 29.6 11,667 29.6 (7,644) 607 4,629 11.7 40.4 (130) 4,499 (125) (400) 3,974 (1,327) 2,647 16.3 20.9
2014e 27,112 6,162 1,642 181 6,047 41,143 4.4 12,637 30.7 (8,101) 493 5,028 12.2 8.6 (100) 4,928 (138) 0 4,791 (1,454) 3,337 17.6 19.4
Source: Lo-Q accounts (historicals), Edison Investment Research (forecasts)
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Lo-Q | 10 December 2012
Exhibit 2: Financial summary £'000s
Dec 2008 IFRS
Dec 2009 IFRS
2010 IFRS
2011 IFRS
2012e IFRS
2013e IFRS
2014e IFRS
13,520 (9,974) 3,546 1,899 1,845 0 0 (18) 1,827 25 1,870 1,851 173 2,042 2,024 0 0 2,042 2,024
17,295 (13,153) 4,142 2,470 2,420 0 0 (42) 2,379 10 2,430 2,389 (494) 1,937 1,895 0 0 1,937 1,895
20,304 (15,262) 5,042 2,512 2,355 0 0 (42) 2,313 7 2,363 2,321 (448) 1,915 1,873 0 0 1,915 1,873
24,546 (18,428) 6,118 3,064 2,764 0 0 (97) 2,667 35 2,799 2,702 (761) 2,038 1,941 0 0 2,038 1,941
30,419 (23,403) 7,016 4,188 3,298 0 0 (100) 3,198 50 3,348 3,248 (909) 2,439 2,339 0 0 2,439 2,339
39,425 (27,758) 11,667 5,733 4,629 0 (400) (125) 4,104 (130) 4,499 3,974 (1,327) 3,172 2,647 0 0 3,172 3,047
41,143 (28,506) 12,637 6,139 5,028 0 0 (138) 4,891 (100) 4,928 4,791 (1,454) 3,475 3,337 0 0 3,475 3,337
Average No of Shares Outstanding (m) EPS - normalised (p) EPS - FRS 3 (p) Dividend per share (p)
15.3 13.3 13.2 0.00
15.6 12.4 12.2 0.00
16.0 12.0 11.7 0.00
16.8 12.1 11.5 0.00
17.4 14.0 13.4 0.00
19.5 16.3 13.6 0.00
19.8 17.6 16.9 0.00
Gross Margin (%) EBITDA Margin (%) Operating Margin (before GW and except.) (%)
26.2 14.0 13.6
24.0 14.3 14.0
24.8 12.4 11.6
24.9 12.5 11.3
23.1 13.8 10.8
29.6 14.5 11.7
30.7 14.9 12.2
787 539 52 195 2,940 307 73 2,559 (383) (383) 0 0 0 0 3,344
779 715 64 0 5,511 415 657 4,439 (988) (988) 0 0 0 0 5,303
1,382 1,204 178 0 7,091 243 829 6,018 (1,214) (1,214) 0 0 0 0 7,260
1,660 1,183 478 0 9,127 494 1,135 7,498 (1,354) (1,354) 0 0 0 0 9,433
3,216 1,651 1,565 0 10,417 613 1,275 8,529 (1,678) (1,678) 0 0 0 0 11,955
17,923 15,958 1,965 0 9,186 794 1,928 6,464 (2,257) (2,257) 0 (4,000) (4,000) 0 20,852
18,045 16,450 1,595 0 12,903 829 2,161 9,914 (2,379) (2,379) 0 (4,000) (4,000) 0 24,569
2,214 25 (25) (299) 0 14 0 1,928 (631) 0 () (2,559)
2,173 10 (13) (346) 0 56 0 1,879 (2,559) 0 () (4,439)
2,988 7 (528) (971) 0 84 0 1,580 (4,439) 0 0 (6,018)
2,882 35 (622) (876) 0 61 0 1,479 (6,018) 0 0 (7,498)
4,531 50 (761) (2,788) 0 0 0 1,032 (7,498) 0 0 (8,529)
5,423 (130) (804) (2,555) (13,700) 5,700 0 (6,065) (8,529) 0 0 (2,464)
6,580 (100) (1,192) (1,838) 0 0 0 3,449 (2,464) 0 0 (5,914)
Year end 31 October from FY10 PROFIT & LOSS Revenue Cost of Sales Gross Profit EBITDA Adjusted Operating Profit Amortisation of acquired intangibles Exceptionals Share based payments Operating Profit Net Interest Profit Before Tax (norm) Profit Before Tax (FRS 3) Tax Profit After Tax (norm) Profit After Tax (FRS 3) Minority interest Adjustments for normalised earnings Net income (norm) Net income (FRS 3)
BALANCE SHEET Fixed Assets Intangible Assets Tangible Assets Other Current Assets Stocks Debtors Cash Current Liabilities Creditors Short term borrowings Long Term Liabilities Long term borrowings Other long term liabilities Net Assets CASH FLOW Operating Cash Flow Net Interest Tax Capex Acquisitions/disposals Financing Dividends Net Cash Flow Opening net debt/(cash) HP finance leases initiated Other Closing net debt/(cash)
Source: Lo-Q accounts (historicals), Edison Investment Research (forecasts)
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Lo-Q | 10 December 2012
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