IT services provider One1 Software Technologies Ltd. (TASE: ONE) will acquire full ownership of software quality assurance company Tescom Software Testing Systems Ltd. (TASE: TSCM-L) for NIS 20 million, as One1 continues its expansion strategy through acquisitions. The company yesterday announced that it signed the memorandum of understanding to acquire Tescom a month ago.
The amount of the acquisition could increase by up to NIS 4 million, subject to Tescom's meeting certain milestones. The purchase price reflects a 53% premium on Tescom's value at yesterday's opening.
One1 CEO and controlling shareholder Adi Eyal is pursuing his expansion strategy for the company embarked on in 2010. It has already made two acquisitions - Calanit Carmon Ltd. and Harel Technologies Ltd. These acquisitions doubled One1's revenue to NIS 511 million in the first half of 2011, compared with the first half of last year, and increased its net profit 25% to NIS 20 million.
Tescom CEO Ofer Albeck owns 44% of the company. He founded the company in 1990, and it currently has 600 employees. Despite steady quarterly revenue of NIS 25 million, its profitability has been unstable and its cash flow is low to negative. The company has to repay NIS 7.5 million in short-term loans to Bank Hapoalim (TASE: POLI) and Bank Leumi (TASE: LUMI) by mid-2012, and it had just NIS 4 million in cash at the end of June. In its financial report for the second quarter, the company said that it was in breach of the financial covenants, and that Bank Hapoalim might demand immediate repayment of the outstanding balance.
One1 will benefit from Tescom's gross profit margin of 24%, which is higher than its own margin of 17-19%. Tescom will also give One1 access to foreign markets, where over half of its business is conducted. One1 currently has only limited foreign operations, carried out through subsidiaries Romania's Wizrom Software and StangaOne World Group, acquired in 2007, which has offices in Tel Aviv, New York, Paris, and Sofia.
Tescom share price fell 1.8% by mid-afternoon today to NIS 1.10, giving a market cap of NIS 17 million, after rising 39.4% yesterday. One1's share price rose 3.9% to NIS 39, giving a market cap of NIS 17 million, after rising 6% yesterday.
Published by Globes [online], Israel business news - www.globes-online.com - on November 9, 2011
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