Tyler Technologies sees M&A opportunities in fragmented government services market - CFO
25 JUN 2018
Tyler Technologies [NYSE:TYL], a provider of management solutions for the public sector, is looking for tuck-in acquisitions to add new products and technologies, or expand its client base, CFO Brian Miller said.
The industry for government software solutions and services is highly fragmented with many small regional and locally focused firms that the Plano, Texas-based company can target, according to Miller.
But it can be a challenge to find acquisition targets with reasonable valuations, he said, especially with private equity firms paying multiples that are often higher than Tyler believes the businesses are worth.
Tyler has had the most success acquiring competitors and customers that don’t run auctions, Miller said.
The company prefers to spend between USD 15m and USD 50m on acquisitions, he said. But it can make bigger deals, too. On 30 April, it bought Seattle-based analytics provider Socrata for USD 150m in cash. That same day it also purchased Portland, Maine-based Sage Data Security. Terms were not disclosed.
Since 2008, Tyler has made 25 acquisitions. Its largest deal to date is its purchase of Troy, Michigan-based software provider New World Systems for USD 699m in cash and stock in November 2015.
The company reported it had more than USD 210m in cash on hand as of 31 March.
Tyler generates more than USD 200 in free cash flow, Miller noted during a presentation to investors at a B Riley event last month. He said it is also a beneficiary of the new tax code, saving USD 30m this year.
Traditionally, the company has relied on an on-premises software licensing model. But about five years ago, it started selling software subscriptions, which now constitute approximately 40% of revenues.
In addition to acquisitions, Tyler has ramped up its research and development spend over the last couple of years to create new products and enhance old ones to address competitive deficiencies.
Infor, Oracle [NYSE:ORCL], SAP [NYSE:SAP] and Thomson Reuters [NYSE:TRI] are its main competitors.
Tyler’s stock closed at USD 230.34 on Friday, giving it a market capitalization of USD 8.81bn.