Lightspeed POS Inc. stock hit a new high Wednesday after the company announced its second $400-million-plus U.S. acquisition in less than a month.
The Montreal software company said after the close of markets Tuesday it would pay US$430-million in cash and stock for Upserve Inc., a Rhode Island-based company that provides internet-based restaurant management software to 7,000 restaurants in the United States, generating US$40-million in revenue annually.
The deal comes just four weeks after Lightspeed said it would pay US$440-million for New York-based ShopKeep Inc., which generates US$50-million in annual revenues from 20,000 U.S. restaurants with a similar product.
In early Wednesday trading the stock increased by more than nine percent and topped $74 for the first time – it went public on the Toronto Stock Exchange in March 2019 at $16 a share - after several analysts increased their targets on the stock.
“With these two acquisitions, [Lightspeed] has increased its overall revenue base by over 50 per cent, removed two sizeable competitors from the mix, augmented the capabilities of its platform, and substantially increased its scale in the U.S. restaurant market,” said BMO Capital Markets analyst Thanos Moschopoulos in a research note in which he increased his stock price target to $80 from $62. “We believe these acquisitions have significantly strengthened Lightspeed’s competitive position.”
CIBC analyst Todd Coupland caled Upserve “a fitting acquisition” because the acquired company has a “robust analytics platform” that provides high end restaurants with better capabilities to manage their inventory and workforces. In addition, he noted Upserve has had success getting its customers to use its payments offering, which is a key source of revenues and a strategic focus for Lightspeed since it introduced its own payments offering close to two years ago.
The deal is the 11th for the Lightspeed as it continues efforts to consolidate the fragmented market for internet-based point-of-sale and payments products for retail and hospitality companies.
“We’re doubling down on the U.S.,” Lightspeed chief executive officer and founder Dax Dasilva said in an interview, adding his company had been in talks with privately held Upserve for more than a year. “We want to have best-in-class teams and technologies so we can be strongly positioned in the U.S. both on the retail and hospitality side when we have the full reopening of the economy” after the pandemic.
Asked if the company could handle integrating its two largest acquisitions at once, Mr. Dasilva replied, We think M&A [mergers and acquisitions] is embedded into the DNA of the company. We have a very solid playbook for integrating these companies.”
Lightspeed is paying about US$123-million in cash and issuing 5.9 million shares to buy Upserve, which is led by CEO Sheryl Hoskins.
The company also said the dilutive impact of the cash-and-share transaction would trigger the automatic conversion of its multiple-voting shares into subordinate voting shares on a one-for-one basis in accordance with terms of its capital structure. The conversion means Mr. Dasilva’s voting stake in the company will shrink to 12.2 per cent from 37.1 per cent as his 14.4 million multiple voting shares – worth more than $1-billion on paper – become single voting shares.
With the two deals, Lightspeed will have 107,000 customer locations globally serving the restaurant, retail, hospitality and golf markets and processing more than US$39-billion in transaction revenue. The combined pro-forma revenues of the company postacquisition would be U$243-million in the past 12 months.
Lightspeed has had a lot of momentum lately: The company’s stock had appreciated by 60 per cent in the past month after it reported stronger-than-expected second-quarter earnings and announced the ShopKeep deal. The company also listed on the New York Stock Exchange in September, raising US$332-million in gross proceeds.
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