Blackhawk Network announced the completion of its acquisition of Achievers Corp. in a press release today. Blackhawk Network CFO Jerry Ulrich commented, “The purchase price of $110 million equates to approximately two times Achievers’ calendar 2014 adjusted operating revenues.”
For the rewards and recognition category, a 2x multiple is disappointing and problematic. For any tech company with recurring revenue, a 3x LTM multiple is the baseline minimum. In the absence of any other verifiable data (such as regulatory filings), this transaction will set the market rate. Until something changes, companies in this category will not be attractive from a tech investment standpoint as long as the revenue model involves software and rewards. These companies don’t look good on paper. For the time being, other companies competing in this category are facing three prospects:
o Near-term exits at less-than-favorable terms
o Immediate pivots to change their business models
o Digging in for the long term, hoping that category fundamentals improve
For Achievers, the end of this first act is a disappointing one simply because it didn’t turn into a big, splashy exit for investors. However, there will be a second act. If there’s a way to make rewards and recognition companies attractive to investors, Achievers will have the opportunity to demonstrate it to investors because Blackhawk is a publicly traded company that must make quarterly SEC filings. If Achievers does well over the next two to three years, it could reinvigorate the category.
For Blackhawk Network, this acquisition could end up being a steal, especially if Achievers is able to reinvigorate the category. Because of the scale and synergies it can bring to bear, Blackhawk could quickly dominate the entire category, capturing enterprise buyers as well as the midmarket.
Look for additional details on the Achievers acquisition during Blackhawk’s next earnings call, scheduled for July 22.