It was 10 years ago that Netsmart Technologies (NASDAQ:NTST), an enterprise software developer, went public. Despite its name, the stock did not skyrocket during the dot-com boom -- and, yes, it has continued to be lackluster after the bust. Now the company wants to be private again, which is a smart move in light of its performance over the years.
Two venture capital firms -- Insight Venture Partners and Bessemer Venture Partners -- have agreed to purchase the company for $16.50 per share, or roughly $115 million in cash. This is a 12% premium from its prior close and above the 52-week high of $15.50.
Essentially, the company develops software for the health-care industry, handling things like billing, scheduling, and electronic medical records. While it's true that this is a large market, there is certainly a variety of competitors, such as Siemens (NYSE:SI), Meditech, Quadramed (AMEX:QD), and Misys.
To gain scale, Netsmart has acquired four companies over the past two years. The emphasis has been on adding new product lines, such as e-learning (ContinuedLearning), methadone dispensing systems (Addiction Management Systems), and public health-care systems (QS Technologies).
No doubt, the deals have helped to boost revenues. In the third quarter, Netsmart posted revenues of $15.3 million, which was an 81% increase from the same period a year ago. Net income was $1 million, or $0.15 per share. Actually, the company has been profitable for 33 straight quarters.
So is Netsmart selling out when things are starting to improve for the long haul? Perhaps. In fact, a portfolio manager at Leviticus Partners LP, which owns about 3% of Netsmart, wrote a letter to the company indicating that the buyout price is too low.
But assuming the company generates about $60 million in annual revenues, the price comes to slightly less than 2 times revenues, which is a typical valuation for a software company. Besides, given its low amount of cash (about $9 million in the bank), it would be hard for it to buy more companies so as to push growth.
Thus, while it would be nice to get a higher price, it does not look like that will happen. And investors seem to agree -- with the current stock price at $16.23.
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Fool contributor Tom Taulli does not own shares of companies mentioned in this article. He is currently ranked 260 out of 14,235 in CAPS. The Fool is quite proud of its disclosure policy.
