Moody’s released their rating of the new debt being taken on in Ion’s acquisition of Triple Point…pretty much sealing this transaction as a done deal, even if not officially announced yet.
Some interesting tid bits from the rating narrative:
“The Caa1 Corporate Family Rating reflects Moody’s expectations for very high pro-forma debt to EBITDA of about 7 times for the next 12 to 18 months. Debt at closing is very high, at about 8.7 times March 2013 trailing twelve months EBITDA of $56 million and over 280% of revenue of $172 million. Triple Point’s software licenses are sold to a concentrated group of commodity management customers; the top 10 customers represented 50% of 2012 revenues. Moody’s expects at least $25 million of free cash flow per year. However, Moody’s also expects Triple Point will apply free cash flow to acquisitions to gain technology and customers to fuel revenue growth, or more shareholder-friendly uses, as opposed to debt repayment. Perpetual license sales in backlog provide visible support for Moody’s 2013 revenue growth expectations; however, should license sales drop in the future, free cash flow would be immediately and adversely affected. Triple Point maintains good near term liquidity from free cash flow and the undrawn $40 million revolver.
The stable ratings outlook reflects Moody’s expectations for over $190 million of revenues and about $60 million of EBITDA in 2013. The rating anticipates moderate near-to-medium term acquisition activity. If Triple Point uses its free cash flow to repay debt, while also growing EBITDA as expected, and Moody’s anticipates balanced financial policies, such that debt to EBITDA is expected to be maintained below 6.5 times, the ratings could be upgraded. Lower ratings would be possible if Moody’s becomes concerned that because of lower expected revenue, increased customer attrition or shareholder-friendly financial policies free cash flow becomes diminished, leading to a decline in the amount and quality of liquidity.”
Moody’s expects Triple Point, under Ion, will continue their acquisition spree as they seek to continue to grow revenues. They also believe Triple Point’s 2013 revenues to come in around $190 million…seems potentially low if Triple Point is able to continue the growth trajectory that they have established over the last 3 years.
It seems that all that is remaining for this deal to be done is the arrival of the fat lady…