Investors were in raptures, or at least briskly enthusiastic, after the headline came out on Friday: "Pushpay buys Colorado rival for $132m."
Its NZX-listed shares rose 3.3 per cent on Friday after the deal was announced and was up another 1.2 per cent yesterday to $4.15 (the stock is up 26 per cent for the year).
My take: the enthusiasm is warranted, but I would not frame it as buying a rival.
Last month, as Pushpay delivered its solid half-year result, new chief executive Bruce Gordon said the company was on the hunt for an acquisition that would complement its virtual collection plate software. Specifically, a maker of software for managing churches, the better to flesh-out its product set.
And that's exactly what Pushpay did as it paid US$87.5 million ($132.2m) to buy the Colorado-based Church Community Builder in a deal funded by drawing on Pushpay's cash reserves ($9.9m as of September 30) and a new US$62.5m debt facility.
Buying Pushpay's most direct rival would have meant scooping up Blackbaud, which Craigs Investment Partners' Stephen Ridgewell recently flagged as a possible competition. At the interim result, Gordon raised as the most potent potential threat in payments - albeit one that is for now largely confined to Catholic churches, in terms of the faith sector segment of its business that caters to a wide variety of nonprofits (Pushpay's business is primarily with medium and large Protestant congregations in the US).
Salt Funds' Matt Goodson says Church Community Builder's wider focus than Pushpay's donation software made it a good fit.
And besides, apart from any regulatory issues, the Nasdaq-listed Blackbaud - which has a market cap of US$3.85 billion ($5.52b) - is just way too large for Pushpay (market cap: $1.1b) to digest at this point.
At Pushpay's half-year report, the otherwise bullish Gordon also conceded that customer growth had slowed as his company saw a 7 per cent increase to 7905.
Sydney-based Royal Bank of Canada analyst Garry Sherriff fretted that most of the low-hanging fruit was gone. Many of the remainder would be more conservative churches who would be harder to persuade to switch payment platforms.
But buying Church Community Builder has, at a stroke, increase Pushpay's client base by 50 per cent, given its new acquisition's software is used to manage 4000 churches in the US (the IT crowd in the faith sector is just as susceptible to jargon as geeks as a whole; church management software is abbreviated to "ChMS").
Gordon said a whole series of acquisitions were possible as his company targets 50 per cent market share among large churches in the US, which he says will equate to around $1b annual revenue (Pushpay brought in $57.4m in the first half of 2020).
Higher barrier to entry
The CCB acquisition will also make Pushpay's new, fuller product set harder to replicate, and more useful to its customers. As an observer of the company, I previously always wondered if there was not a danger that congregations would clock to the fact that they could manage weekly giving through PayPal and MailChimp at a fraction of the cost.
Pushpay said the deal won't have a material impact on earnings in the March 2020 year because of the work needed to integrate the products, but should lead to higher earnings in subsequent years.
We'll have to see how it pans out, but by so quickly following through on his vow to growth through M&A, Gordon has established himself as a do-er, which won't harm investor sentiment, and will allay qualms about the departure of co-founders Chris Heaslip and
Craigs' Ridgewell recently reiterated his buy rating on Pushpay, lifting his 12-month target from $4.25 to $4.75.