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Crayon Group [OBX:CRAYON], a Norwegian software asset management (SAM) consultancy is in preliminary talks with potential targets as it seeks to strengthen its presence across its international markets, CEO Torgrim Takle said.

Crayon, which raised NOK 340m (EUR 35.6m) from its listing on the Oslo Stock Exchange on 8 November, has an active pipeline of approximately 15 potential targets, he said. Its main focus for the near future, however, is to ensure the profitability and build up of all its international operations, he added. M&A will become more important in the next two to three years, but the company could make acquisitions sooner, he said.

Crayon has previously sought assistance from financial advisers to identify targets, but has not found a suitable adviser that has knowledge of the sector in all the different markets it is interested in, Takle said. For this reason, it is conducting the target identification process internally, but would welcome advisory pitches on potential targets as long as they fit its criteria, he said.

It may use a financial adviser in executing M&A deals but this will depend on the target size, he said.

It is interested in software and digital services businesses in the c. USD 10m – USD 50m revenue range, particularly in the UK, the Benelux region, France, Spain, Portugal, and the US, where it wants to strengthen its existing presence, he said. It is not interested in entering any new markets, he added.

Cloud-based solutions such as systems monitoring, software optimisation, predictive analytics, and machine learning are interesting areas in which Crayon could acquire, Takle said.

A competitive market environment means that valuations become more attractive, he said, adding that it would ideally pay between 3x – 5x EBITDA for targets. There are plenty of targets in the IT services sector, in which local markets are highly competitive with over-representation of players that do not have sufficient scale, Takle said.

It prefers targets with a maximum of 100 employees as the bigger the staff, the more complex the integration process, Takle said.

Crayon prefers to buy majority stakes, but owning 100% is not critical and it likes to keep local management that maintains a minority ownership in the company, in place, he said.

It favours an earn-out acquisition structure, Takle said adding that most of its past acquisitions have been done this way and it intends to use this model in future purchases.

It also receives approaches from companies looking to sell, he said declining to elaborate.

Crayon will look at acquisition financing case-by-case but could use a combination of cash and own shares, Takle said.

Crayon reported NOK 6bn FY16 revenue and NOK 103m EBITDA, compared to FY15 NOK 4.7bn and NOK 114m, respectively. It recorded NOK 3.76bn 1H17 revenue and NOK 82.24m Adjusted EBITDA, compared to NOK 3.2bn and NOK 52.98m in the same period last year, respectively.

The company was established in 2002 and was previously listed, until acquired by Norwegian private equity firm Norvestor in 2012. Norvestor remains the largest shareholder with approximately 22% holding following the IPO.

Crayon operates in 21 countries across the world, and has approximately 1,000 employees. It offers software asset management, cloud and volume licensing, and associated consulting services.

Its competitors include Switzerland-headquartered SoftwareONE, and the big four consultancies EY, KPMG, PwC and Deloitte, as well as numerous local players in its operating markets, including Norwegian Atea [OBX:ATEA], Takle said.