At the end of 2011, after two failed attempts, the controlling shareholders in Roshtov Software Industries Ltd. managed to delist the company from the stock exchange in a tender offer to purchase at a valuation of NIS 104 million. Less than five years later, they are selling control of the company at a 30% higher valuation. Magic Software Enterprises Ltd. (Nasdaq: MGIC; TASE: MGIC), which provides software development and business integration tools, announced today that it was buying 60% of Roshtov for $21 million cash, a price that values Roshtov at $35 million, or NIS 135 million at current exchange rates.
The sellers are Roshtov founders Hanan Shahaf (CEO) and Dr. Allon Zuker.
Magic Software Enterprises, managed by Guy Bernstein, belongs to the Formula Systems group controlled by Polish company Asseco, and is traded on Nasdaq and on the Tel Aviv Stock exchange at a market cap of $294 million. In response to today's announcement, shares in Magic Software Enterprises rose 3%.
Roshtov developed the Clicks platform, used in the design and management of patient-file oriented software solutions for managed care and large-scale healthcare providers. Amit Birk, Vice President M&A at Magic Software Enterprises, said that Roshtov's platform was another product that complemented Magic's development platforms. Clicks, he said, represented "a significant player in medical records in the Israeli health market," adding that "all the clinics of the General Health Fund and the Maccabi Health Fund use this platform." According to Roshtov's figures, it covers 85% of the Israeli market.
Outside of Israel, however, the company is not yet a significant player. The acquisition deal will be closed during the third quarter, subject to regulatory approvals, and Magic Software Enterprises has an option to buy 100% of Roshtov on the basis of a mechanism agreed with the sellers.
Magic Software Enterprises had over $80 million cash at the end of the first quarter. It has not released financial data of the company it is acquiring, but Birk stresses that it is profitable.
The last published financial statements of Roshtov are from before it was delisted in 2011. In the first three quarters of that year it had revenue of NIS 25 .7 million and a profit of NIS 9.9 million.
In the valuation that Roshtov published as part of the offer to purchase, the valuer used a sales forecast that assumed a 2% drop in 2102-2013, and a return to growth of 2% in 2014 and 4% in 2015, with gross profit margins improving to 59% in 2015.
Magic Software Enterprises makes acquisitions as part of its strategy, but in the past two years these have been small. "This acquisition is very important from the point of view of our acquisitions strategy, and it is a large transaction relative to those we have carried out in the past, a strategic and significant deal for the company. This is an acquisition of a technology company, not a services company such as we have bought in the past, and it brings added value to Magic's sales mix," said Birk, who does not rule out further acquisitions later on.
Published by Globes [online], Israel business news - www.globes-online.com - on June 20, 2016
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