Ranking of Canadian Software Consolidators by Key Metrics

EXECUTIVE SUMMARY

The below table summarizes key metrics amongst Canadian listed software consolidators ranked in accordance to EV/EBITDA.

Now some of these consolidators are cheap for a reason but in my view VHI is the standout with peer leading organic growth, strong Rule of 40 metrics and a war chest of liquidity relative to the size of their current business allowing for the opportunity to accelerate growth in the near term all at a reasonable valuation based on EV/Revenue and EV/EBITDA compared to other high performing consolidators such as Constellation Software and their spin outs. ROIC % is middle of the pack but has been growing, but still needs to be proven.

OPEN TEXT (OTEX)

Trading at a low valuation for good reason principally due to negative/flat organic growth and a very levered balance sheet which increases financial risk but also limits the company’s ability to grow via M&A and even resulted in the company divesting a division to pay down debt.

In my view this is a value trap.

ENGHOUSE (ENGH)