RIB Software: the unicorn rainy-day fund
RIB Software is a German-listed technology company with grand aspirations. What SAP's enterprise resource planning software has done to manufacturing, it hopes to do to the construction industry. Digitisation of planing, design and project management for builders and property companies it hopes will be big business.
German investors seem to have bought in to the idea, awarding it a tech-unicorn size €1.1bn valuation of around ten times sales. They also recently handed RIB €131m to spend, the third time the group has sold stock to raise funds since listing in 2011.
What might strike some as odd, however, is that RIB Software also paid a dividend last year, and intends to distribute €9m again this year. It's a little like attaching a yo-yo to a piggy bank.
Dividends at a fast-growing tech company are unusual, but then RIB has been reporting healthy profits for years. Investors might quibble over the €21m of research and development costs which are capitalised, rather than put through the profit and loss statement, but the group does produce cash.
On RIB's preferred measure of adjusted operating ebitda, it made profits of €40m on sales of €108m last year. Cash flow from operations was €22m. It ended the year with €135m of cash in the bank and cash-like securities.
As we have previously highlighted, raising funds while sitting on lots of cash can prick up the ears of sceptical investors. It was something the conglomerate Steinhoff International did for years, before the accounts were withdrawn as unreliable in December. Ubiquiti, a US maker of tech hardware, attracted the attention of short sellers for raising debt while holding cash offshores.
So why did well-resourced RIB Software tap investors for another €131m?
Mads Bording, RIB chief operating officer, told us:
We've done this equity raise to make sure we have sufficient funds to execute on our strategy
The investor community also supports the capital raises, he said, and the company can't know what market conditions will be like for the next five years. Mr Bording said RIB aims to €100m on its balance sheet “for acquisitions, for a rainy day”.
The company said at the time of March's capital raising it had earmarked €35m for deals in prospect. It also plans to buy three to five Managed Services Providers (MSPs), which set up and manage cloud infrastructure (infrastructure as a service, in the jargon) for other companies via the internet.
Asked what else RIB would do with the money it had raised, Mr Bording also said the company was “building a new layer on our tech”. Artificial Intelligence also features in the company's plans, he said, where it was “investing in teams of our own, so we have to do that very quickly”.
He also gave the example of opportunity missed with Blue Beam, a software group providing PDF-based workflow solutions to the construction industry, acquired for $100m by Nemetschek in 2014. Had RIB bought it instead, the company could be valued at twice what it is now, he said. .
Such a focus on valuation appears to be another uncommon aspect of RIB's approach. In a recent presentation to investors, for instance, it laid out the maths of how it could be valued as a €2bn company. The slide was clearly marked “no management guidance”:
Raising the money ahead of time isn't necessarily the wrong thing to do, suggesting a Germanic sense of caution, perhaps. Investors might want to exercise a similar level of caution when assessing why a company with lots of cash, wants more.