Redknee Solutions And ESW Capital: An Attractive Special Situation

Mar. 09, 2017 11:54 AM ETOptiva Inc. (RKNEF), OPT:CA9 Comments
Mohan Plakkot profile picture
Mohan Plakkot


  • Redknee Solutions is a vertical market software company trading at 1.5x sales.
  • Recently, ESW Capital, an expert in software turnaround situations invested $80M in Redknee through preferred shares, changed the board and brought in veteran turnaround expert from within ESW Capital.
  • ESW Capital has been acquiring and then operating software companies since 2006. To date, it has acquired 30+ software companies.
  • Typical ESW Companies operate at 40% to 50% Ebitda margin.
  • At a conservative 8x Ebitda/EV multiple, Redknee should trade at CAD $2.00 = 100% return over the next two years.

The last time Valsef Capital published an article was on XPO Logistics (XPO) in 29 March 2012 and XPO Logistics has since returned 202%. The Redknee Solutions (OTCPK:RKNEF) (Redknee Solutions is listed in the Toronto Stock Exchange) investment opportunity seems equally if not more compelling. Our thesis is as follows.

Redknee Solutions Investment Thesis:

Redknee Solutions is a software company that generates revenue from mission critical software used by Telecom clients around the world. Redknee's solution set provides Business Support Systems (BSS) namely; billing, charging, customer care and payments solutions for voice, messaging and data services (Product/Customer/ Revenue/Order management).

Recent developments since December 2016 have resulted in a special situation opportunity. At the core of this thesis is ESW Capital, a Joe Liemandt investment company that has been acquiring and operating software businesses for over 30 years, with a specialization in turnarounds and restructuring. ESW Capital is part of a larger group of companies that include Trilogy (one of the largest privately held software businesses), Versata and Aurea forming three of the largest operating businesses.

Under ESW Capital's operating model (based on the group's history of value creation), Redknee is capable of operating at 40%+ Ebitda margin. Consequently, at a conservative 8x Ebitda/EV multiple, Redknee should trade at CAD $2.00 = 100% return over the next two years.

The Thesis is structured as follows:

  • Understanding ESW Capital, its founder/CEO Joe Liemandt, Trilogy, Versata, Aurea and its group of companies

What is ESW Capital? What does it achieve after acquisition? How does it achieve 40% Ebitda margins with software turnarounds? What is the process?

  • ESW Capital's success with public software companies
    • Upland Software (UPLD) + ESW Capital = 105% return from 2015 low.
  • A comparison: ESW Capital Vs. Constellation Software (OTCPK:CNSWF) (Canada's best software acquirer) - CSU has generated 3,400% return since

This article was written by

Mohan Plakkot profile picture
My passion in understanding businesses and the underlying value they represent drives all my investment ideas. I always gauge buying stocks to buying a company in the private market - price is always a function, but the core business drives the investment decision. I am Chief Strategist at Valsef Capital, an investment company in Montreal, Canada.

Disclosure: I am/we are long RKNEF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: In order to maximize total returns for our shareholders Valsef Capital reserves the right to make investment decisions regarding any security without further notification except where such notification is required by law. Finally, this article is free.

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