Procore (PCOR -0.86%) is a construction management software company that has been trading in the public markets for a little less than six months. Despite the relatively short time period as a public company, it hasn't taken Procore long to make a big splash.
Two weeks ago, the company announced that it signed a definitive agreement to acquire liens rights management company Levelset for $500 million -- let's see why.
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What does Levelset do?
Before diving into Levelset's operations, it's worth explaining why the company exists in the first place.
When it comes to payments, the construction industry is quite unique. In Procore's press release announcing its acquisition, the company stated that the construction industry has a "median of 90 days sales outstanding and 74 days payables outstanding, the slowest of all industries surveyed across the globe."
Given this complexity and delay in the payments process, a tool that's often used and relied upon by construction groups is known as a lien -- in particular a mechanics lien. This tool ensures that the parties involved in a construction project get paid appropriately for their work by using the physical property as backing.
But filing a mechanics lien isn't very easy either. In order for an individual or group to be able to able to file one, the group has to stay compliant. Being compliant requires following extensive procedures with multiple deadlines which can vary by state. This is where Levelset fits in.
Levelset is home to more than 3,300 customers that use the platform to stay up to date and manage their liens rights. Not only does this keep Levelset's customers lien compliant, but it also enables them to get paid faster -- avoiding cash crunches.
Though it remains to be seen what Levelset's actual integration into Procore's platform will entail given that Levelset has already been a marketplace partner for more than three years, it's hard to imagine Procore's 11,000+ customers being anything but excited to see liens management tools offered as a new feature.
What does this mean for Procore shareholders?
According to the press release announcing the purchase, Procore will pay $425 million in cash and $75 million in stock to finance the deal. Though that might sound like a big acquisition for a newly public company, Procore should still have plenty of liquidity as it recorded more than $1 billion in cash and equivalents on its balance sheet in the most recent quarter. Not to mention, the company is already cash-flow positive: Procore posted $21 million in free cash flow for the first half of this year.
Though it's difficult to know whether or not Procore paid a fair price given that Levelset hasn't published any publicly available financial results, there's no doubt that Levelset serves a critical function. According to Levelset CEO Scott Wolfe, Jr., "Over 250,000 users have deployed Levelset on more than 6.5 million construction projects." As even further validation of customer satisfaction, the company boasts an average net promoter score of 9.3 out of 10.
Good on paper
All in all, this acquisition should serve as yet another layer of functionality to Procore's already robust offering. Procore provides a comprehensive solution spanning the entire project lifecycle from preconstruction through the close and Levelset can help further address customer pain points.
While Levelset certainly seems like an ideal fit for the Procore platform, it's always possible to overpay. To get a better sense of the acquisition price, investors should keep a close eye on the upcoming quarterly conference call for any potential management commentary on Levelset's financial information.
