It was 10 years ago that Netsmart Technologies
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
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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