Geac Computer Corporation Ltd’s bold and controversial acquisition of Dun & Bradstreet Software in November last year has proved a triumphant success. The fourth-quarter results of the Markham, Ontario-based systems integrator, show net income up 130% at the equivalent of $15m on revenue up 152% at $98.6m. Geac’s share price started to climb eight months ago when the deal was announced. Many analysts believed at the time that the $190m price tag for Dun & Bradstreet’s troubled software division represented a steal. But doubts remained about the wisdom of such a huge acquisition by one of the most acquisitive companies in the high-tech sector. In revenue terms, D&B Software was substantially bigger than Geac itself. Following the deal, Geac’s third quarter results were embroiled in the mire of $120m worth of intangible asset write-offs and reorganization costs and it was far too early to see for certain what was going on behind the scenes. But the fourth quarter results are free from trouble and the latest earnings figures have given weight to chief executive Bill Nelson’s claims of an easy assimilation of D&B Software. The rapid turnaround of what was basically a break-even business under previous ownership encourages us to pursue our aggressive acquisition strategy, he said. In fact, the fourth quarter earnings of $0.47 per share were so far in excess of market expectations (First Call predicting just $0.28) that the shares soared to a 52 week high of Canadian $48.25 on the Toronto Stock Exchange, a jump of around Canadian $10. Despite Geac’s proven track record of shrewd acquisition policies, many investors were cautious about ‘the big one’ and were waiting for confirmation before jumping in. The extra profit has come from cutting costs in what was an absurdly bloated and poorly run division of Dun & Bradstreet, and the challenge now is to try and build up sales. Many analysts believe that the continuing task of assimilating D&B software will preclude further acquisitions, at least in the short term, but Geac is sitting on a pile of money from its existing business which is highly cash generative. Combine this with an unused credit facility of Canadian $100m and it is certain that Geac won’t remain quiet for long.
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