Martello Technologies Group Inc. announced two initiatives as part of a strategic investment to strengthen its DEM capabilities.
The Company has entered into a share purchase agreement (the “Share Purchase Agreement“) dated April 28, 2020 to acquire 100% of the shares of GSX Participations SA (“GSX“), a provider of end-user experience monitoring for Microsoft Office 365 headquartered in Geneva, Switzerland with more than 400 enterprise customers globally. The consideration for the acquisition is 22,000,000 common shares and CDN$13,860,000 cash for an aggregate purchase price of $18,700,000, subject to adjustment (the “Purchase Price“),
Martello intends to close debt financing concurrently with the closing of the Transaction. Financing provided by Vistara Capital Partners will fund the acquisition of GSX, while a secured revolving credit facility from National Bank of Canada will be made available to Martello to draw upon from time to time to finance its day to day operations. The transaction is subject to the completion of standard conditions of closing for this type of transaction, including the completion of the financings as well as conditions regarding minimum cash and available cash at closing. Additional information about the transaction and the debt financings above are detailed in this press release. Closing is expected by May 28, 2020.
Martello also announced that, as part of an enhanced focus on its software as a service (SaaS) -based DEM strategy, the Company has completed a strategic review of all operations and is taking steps to achieve efficiencies across the organization. As a result, Martello has reduced its workforce with a specific focus on the former Elfiq division, and is in discussions with a third-party regarding a divestment of this division. These decisions have been taken in the context of rapidly expanding global remote work requirements and the resulting opportunity created in the SaaS-based DEM market, and by the Company’s priority to achieve positive adjusted EBITDA in the near term. Additional details are provided in this press release.
GSX Transaction Highlights and Commentary:
- Based on unaudited financial statements prepared by GSX for the year ended December 31, 2019:
- GSX generated €4.4M of revenues in FY2019, which is approximately CDN$6.6M.
- Pro forma consolidated Martello revenues on a trailing twelve-month basis are approximately $19.7M.
- Approximately 89% of total GSX revenue for its software during FY2019 was recurring, with Monthly Recurring Revenue (MRR) of approximately €0.3M, or CDN$0.45M.
- GSX billings from sales of Microsoft Office 365 digital experience monitoring increased by 34% in FY2019.
- GSX’s gross margins are approximately 90%.
- GSX EBITDA in FY2019 was (€1.1M)
- Complimentary to the earlier acquisition of Savision, the acquisition of GSX further extends Martello’s digital experience monitoring capabilities into Microsoft Office 365, which is the dominant business application platform used by Martello’s enterprise and SMB markets.
- While this acquisition has been in negotiation and diligence for more than six months, recent events show the opportunity with Microsoft Office 365. The service has 200 million monthly active users, typically growing at a pace of 3 million users per month1. With remote work increasing, Microsoft noted on March 19, 20202 an unprecedented spike in Teams usage, with daily users growing by 12 million in just seven days.
- Once synergies are realized from integration, Martello believes that GSX should deliver positive adjusted EBITDA contribution, and with MRR and Office 365 monitoring growth trajectories, should help to deliver EBITDA margins typically associated with SaaS vendors.
- GSX is a Microsoft Gold Partner in both Messaging and Cloud Productivity.
- Near-term growth opportunities as a result of this transaction include:
- Integrating the GSX software into Martello’s multi-tenant cloud SaaS environment to provide a simplified deployment model for GSX’s existing target market (large enterprise and MSPs) while also expanding its addressable market to small and medium sized businesses.
- Offering Office 365 user experience monitoring to existing Martello customers and partners, many of whom use or sell Office 365.
Here what John Proctor, President and CEO of Martello said: “There are few services whose performance is as critical to CIOs as Microsoft Office 365”. “By acquiring GSX, the Company extends its existing monitoring, analytics and network optimization capabilities deeply into Office 365 and increases monthly recurring revenue from this mission critical space. As we take steps to exit the SD-WAN business, Martello will be focused on strengthening its SaaS-based DEM market opportunity going forward, to increase MRR and move towards positive adjusted EBITDA. We’re pleased to welcome GSX into the Martello family, and appreciate the confidence that National Bank and Vistara Capital Partners have placed in us – in today’s uncertain market conditions, our lenders recognize Martello’s market opportunity together with GSX”.
“Businesses in every industry are deploying cloud services such as Microsoft Office 365, unified communications and video conferencing”, said Antoine Leboyer, President and CEO of GSX. “Martello has built an impressive family of solutions which combines monitoring and analytics capabilities to ensure an optimum user experience for these key business services. We are excited that GSX’s advanced synthetic Digital Experience Monitoring capabilities will enhance Martello’s portfolio of solutions, while adding more value to our clients and partners”
“As the world has shifted to remote work and usage of cloud-based communication and collaboration tools such as Microsoft Teams has grown rapidly, Martello’s opportunity has become even more attractive”, said Noah Shipman, Partner in Vistara Capital Partners. “We are impressed by Martello’s management team, technology and market opportunity, and believe that the acquisition of GSX will help accelerate its growth with a solution for the expanding Microsoft Office 365 market. Vistara invests in ambitious technology companies with resilient business models across North America and are specifically proud to support another emerging Canadian technology leader in Martello”.
“National Bank is pleased to partner with Martello, a leading provider of monitoring and analytics solutions for real-time cloud services. We’re proud to support the growth of this renowned Ottawa-based company and to have assisted them with financing this strategic investment. This collaboration is in line with our firm commitment to promoting innovation, even in uncertain economic times, and supporting Canadian businesses,” said David Looi, Senior Director, Technology and Innovation Banking Group at National Bank.