ROP - Roper Technologies

[kapilm]

Broeb22 - research note was very helpful. As the business scales up, it'll be definitely challenging finding new businesses which can contribute meaningfully. Portfolio rotation by shedding legacy industrial assets could be another option to improve the overall asset mix while also taking advantage of the higher valuations.

[Liberty]

$1.1bn acquisition: http://investors.ropertech.com/file/Index?KeyFile=393578639

[Broeb22]

A little more detail on PowerPlan. While I wasn't sure before, it looks like end users tend to be accountants or more broadly the FP&A team within organizations.

FCF Multiple looks very rich...The company could be growing quickly, which would mean FCF should increase quickly, but there's not enough detail to know.

When you start making acquisitions at these prices, I wonder if a TDG-style special dividend begins to become more attractive?

PowerPlan, Inc. provides an integrated suite of asset-centric accounting, tax, budgeting, and analytics software
solutions for Fortune 500 companies in utilities, oil and gas, transportation, telecommunications, and mining
industries. It offers Charge Repository, which manages the interfaces between various sources of transactions,
including the general ledger, project accounting, and book depreciation; Budgeting and Project Management, an
integrated capital and O&M budgeting solution; Asset Accounting, an asset tracking and financial processing
solution; Property Tax, a property tax solution; Income Tax, a tax depreciation and deferred tax system; and
Lessee Accounting, a lifecycle accounting system for capital and operating leases. The company also provides
asset retirement obligation, depreciation studies, reimbursable and advances, and tax solutions. It also offers
integration design, training, and maintenance and support services. The company was formerly known as
Powerplan Consultants, Inc. PowerPlan, Inc. was founded in 1994 and is based in Atlanta, Georgia.

http://www.martinwolf.com/Websites/martinwolf/images/2.%20Tracker_2015/MW_Tracker_2015.2.16.pdf

[Broeb22]

Sorry for the slow dribble of info...wanted to highlight customer base as of Thoma Bravo's acquisition. 80% of investor-owned utilities. I imagine ROP's thesis and likely Thoma Bravo's is to expand this product's penetration into many more capital-intensive industries.

PowerPlan Consultants delivers PowerPlant and PowerTax, the premier solutions for budgeting, project, asset, depreciation, and tax management for asset intensive industries. Today over 80% of the investor owned utilities in the United States use PowerPlant. The PowerPlant accounting and tax products optimize cash flow and asset recovery for both book and tax purposes under Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS). The PowerPlant project and budgeting products build shareholder value for clients through the application of best practices in managing complex construction cycles across thousands of projects. Learn more about PowerPlan by visiting http://www.powerplan.com.

[Liberty]

FCF Multiple looks very rich...The company could be growing quickly, which would mean FCF should increase quickly, but there's not enough detail to know.

When you start making acquisitions at these prices, I wonder if a TDG-style special dividend begins to become more attractive?

18.3x FCF for an asset-light business that dominates its niche, with 40% FCF margins, 70% recurring revenue and 98-99% retention rates, growing mid to high single digits is "very rich"?

Guess you're a deeper value investor than I am.

If it performs as expected and there are no huge bad surprises, I think it was a pretty damn good deal at that price.

[Broeb22]

Yes it looks rich. A 5.4% FCF yield on a $1.1 billion purchase of a business with $150MM in revenue is not obviously a great buy.

What makes up those 30% non-recurring revenues and how high-margin are they?

Without more detail, it could be very cheap or could be a peak multiple of peak earnings; I just don't know.

[Liberty]

Yes it looks rich. A 5.4% FCF yield on a $1.1 billion purchase of a business with $150MM in revenue is not obviously a great buy.

What makes up those 30% non-recurring revenues and how high-margin are they?

Without more detail, it could be very cheap or could be a peak multiple of peak earnings; I just don't know.

That's a lower multiple than ROP, so I'm guessing you're not in this thread because you like the parent business...

Why are you valuing it like a bond? It's a business. Say you get a 5.4% FCF yield, and it grows like they claim, so mid to high single digits.

So that's say 5.4 + 5-9%

But that's revenues. This is a software business, so incremental margins are probably ˜70-80%, so you get a nice bit of operating leverage.

Roper runs with a few turns of leverage (they keep it investment grade, usually maybe 2.5x EBITDA), so you get a bit of lift from there too.

And since this business has basically no capex, high ROIC, all cashflow basically turns to FCF and in fact deferred revs mean that it throws off cash as it grows, it tends to command higher valuations than a business with a different profile.

As a standalone business it's actually less valuable because the cash can't all be re-invested and it piles up, dragging down performance over time, but inside ROP the cash is sent up to HQ for redeployment via M&A, and they have a good track record of that, so you can actually justify paying more for it inside ROP than as a standalone PE deal, IMO.

So with all that taken into account, I can easily see paths to 15-25% CAGR for an asset like this. Who knows what will happen, but it certainly makes no sense to me to value it like a bond, and if you're waiting to get a growing business of this apparent quality, of this scale, with a FCF yield of 15% or whatever, you'll either wait forever, or what you buy will have a huge fatal flaw that makes the run-off price justified.

As for the recurring vs. non recurring, if the blended FCF margins are 40% and the non-recurring is low-margin, then you can imagine the margins on the recurring stuff. But historically, this business started as a service business and later transitioned to software. So I'm guessing that part of the non-recurring is service stuff, but it's probably going down over time (another tailwind). Or maybe part of it just more transactional software stuff on top of the recurring stuff (a lot of licenses are like: $X/month + $Y per type Z action in the system).

[Liberty]

http://www.ropertech.com/sites/default/files/180628_%20Thermo%20Fisher%20Scientific%20Signs%20Agreement%20to%20Acquire%20Gatan%20from%20Roper%20Technologies.pdf

Looks like $ROP sold about 0.54% of its revenues for 3.3% of its market cap in cash. At a run-rate of 150m in FY18, Gatan sold for 6.16x sales and I’m estimating between 18-20x EBITDA. And it was one of their more cyclical businesses.

[Liberty]

http://www.ropertech.com/roper-technologies-appoints-neil-hunn-president-and-chief-executive-officer-succeeds-brian-jellison

Brian Jellison going to executive chairman because of health issue, Neil Hunn (COO) becoming CEO.

[Broeb22]

RIP Brian Jellison.

http://www.ropertech.com/roper-technologies-announces-passing-executive-chairman-and-former-ceo-brian-jellison