Service Point Solutions, will resume M&A activity in 2010 in a bid to boost scale. So said the company's chairman, Juan José Nieto, at the Annual General Meeting held today in Barcelona.
The company is in the process of analysing six potential transactions with companies with aggregate revenue and EBITDA of €85 million and €13 million, respectively. Juan José Nieto confided in the company's shareholders that the Board has already analysed two of these acquisitions in depth. Until 2007, Service Point was acquiring an average of four companies a year. According to the company's chairman, "we are ready to resume our acquisition-led growth policy, with a special focus on strategic markets such as Scandinavia and Germany".
All the transactions under analysis would be earnings accretive from day one thanks to Service Point management, the companies' standalone profitability and estimated savings. They would also give Service Point a foothold in new countries.
Service Point does not rule out financing these acquisitions with equity, issuing shares to the sellers. If the transactions at an advanced stage materialise, the first such equity issue could total €10 million, taking place towards the end of the third quarter. Over the coming 12 months, Service Point could raise equity again as a function of its business performance, investment opportunities, balance sheet strength and its share price performance.
During the AGM, Juan José Nieto also alluded to the company's earnings performance. Service Point's chairman expects momentum to improve as the year unfolds, saying that "cost streamlining combined with the revenue firming witnessed during the early months of 2010 will underpin earnings momentum which should gather pace as the year progresses".
The company's financial performance in 2009 was marked by the cost restructuring program which concluded last quarter, the results of which have topped the company's own estimates. Service Point managed to cut costs by €21 million and capex by 51% last year. This cost-cutting, combined with the improvement in sales in most of the company's operating markets, has paved the way for an inflexion in earnings in the second quarter.
During 2009 Service Point reinforced its sales effort to shore up organic growth and offset the dip in customer business volumes. At present, 48% of customers come from the corporate sector, 26% are classified as AEC (architects, engineers and construction), 12% are financial institutions, 9% belong to the public sector and the remaining 5% to the education sector. The company plans to increase the contribution of the e-commerce channel which is expected to generate 30% of revenue in the next couple of years, compared to 5% today. In 2010 Service Point is looking to continue to reinforce the company's sales arm, particularly in the print-on-demand, web-to-print, facilities management and document management segments.
Juan José Nieto expressed his confidence that investors will acknowledge the work performed in recent years and the upside inherent in the company's valuation. According to Service Point's chairman, "the share price should recover as soon as equity markets stabilise. In addition, share price momentum could pick up as the company grows in scale by resuming its M&A activity."
To demonstrate their commitment to the company, on 22 June the company's directors agreed to earmark half their pay to buying Service Point shares, which will bring their combined shareholding in the company to approximately 31%. Last year the Board members cut their pay by one-third, a decision in keeping with the cost cutting program put in motion by the company one year earlier