Level Platforms Valuation: AVG Paid Only 1.9X Revenues

AVG Technologies revealed that it paid only 1.9 times revenues for Level Platforms, a far lower valuation than CA Technologies paid for Nimsoft and SolarWinds (SWI) paid for N-able Technologies. Here are the financial details, along with updates on how AVG is evolving Level Platforms only a few weeks after buying the RMM (remote monitoring and management) software company.

AVG acquired Level Platforms in June 2013. At the time, valuation and financial terms were not disclosed. That all changed amid an AVG earnings call (featuring new CEO Gary Kovacs) as well as an SEC filing on Aug. 1.

SEC Filing: The Numbers

In the SEC filing, AVG seemed to indicate that it paid roughly $23.4 million for Level Platforms.

AVG's SEC filing stated: "On June 28, 2013, AVG Netherlands B.V. and AVG Technologies Canada Inc. acquired certain assets and liabilities from LPI Level Platforms Inc. (“LPI”), a remote monitoring and management software company based in Canada. The results of operations of the acquired LPI business were included in the consolidated statements of comprehensive income from the date of acquisition. Supplemental pro forma information for LPI is not material to the AVG’s financial results and therefore is not included. AVG incurred acquisition-related transaction costs of $321 which were recorded in general and administrative expenses. The purchase consideration of $23,418 is subject to adjustment based on the finally determined working capital amount."

Note from MSPmentor: SEC filings typically assumes financials are in the thousands. So $3 actually means $3,000. And in this case, $23,418 actually represents $23,418,000.

Earnings Call: Level Platforms Valuation

But is the $23.4 million the actual price paid for Level?

During the Q2 2013 earnings call on Aug. 1, CFO John Little and COO John Giamatteo offered more clues and revealed that Level Platforms was valued at only 1.9 time annual revenues. 

Indeed, either Little or Giamatteo (I didn't catch which…) said: "M&A activity represented $23.3 million [during the quarter], including a cash outflow for Level Platforms' business at $20.1 million; the initiation of a share buyback representing $1.5 million and a net repayment of $11.1 million of debt. The purchase of Level Platforms' business was equivelent to 1.9 times trailing 12 months revenue — which made the acquisition a compelling financial proposition as well as a strategic fit for our business."

Valuation: Low

Read between the lines and it almost sounds like Level Platforms was a fire sale — perhaps pressured by a Level Platforms debt payment deadline to venture capitalists. In stark contrast, CA Technologies in 2010 paid 10 times revenues for Nimsoft — a mid-market management platform. And more recently, SolarWinds paid roughly 5 times revenues for N-able Technologies, which competes in some areas against Level Platforms.

The comparatively low valuation also suggests Level Platforms had far slower growth rates than many of its rivals. Still, AVG obviously sees great promise in Level Platforms — and changes are already under way at the RMM software company.

Level Platforms Changes

AVG has a history of successful acquisitions and the company certainly knows how to drive profitable growth. But that growth will apparently involve numerous changes at Level Platforms.

A few examples:

• During the Aug. 1 earnings call, AVG indicated the Level Platforms corporate brand will go away. Level Platforms Managed Workplace will be rebranded as AVG Managed Workplace.
• During the call, AVG said Managed Workplace will contribute $5 million to AVG's revenues for 2013. (I believe the $5 million represents roughly a half-year's worth of performance).
• Mobile, mobile and more mobile was the key theme throughout the earnings call. Certainly Managed Workplace's mobile device management (MDM) capabilities will play a role there.
• AVG has lost roughly three Level Platforms employees to Datto in recent weeks, MSPmentor has heard. I think that suggests the Level Platforms buyout initially lacked (A) employment retainer offers or (B) lock-up agreements for the bulk of Level Platforms' employees.
• Overall, I believe AVG has cut roughly 25 Level Platforms employees.
• Still, some strategic hires at Level Platforms could also be coming. (Stay tuned…)

Wall Street's Bigger Concern: Google

During the AVG earnings call, Wall Street analysts didn't ask a single question about the Level Platforms deal. Instead, analysts asked about an existing AVG-Google (GOOG) relationship that generates extensive revenue but also includes the right for either AVG or Google to abandon. AVG on the earnings call indicated that the relationship is strong, but also stated that more search engine engagements outside of Google are coming.

AVG Bottom Line: Solid

Admittedly, recent weeks have likely been uncomfortable for some Level Platforms employees amid layoffs and questions about who's sticking around. But the bigger financial picture at AVG looks like a strong one.

According to AVG:

• Q2 revenue was $100.4 million, up 22 percent from $82.5 million in Q2 2012.
• Q2 net income was $21.7 million, up 95 percent from $11.0 million in Q2.

The company raised its outlook for fiscal 2013, predicting:

• Revenue will be $416 million to $427 million.
• Net income will be $75 million to $86 million.

Net income figures are all stronger than Wall Street previously expected. Even so, AVG's stock fell about 7 percent after hours because Wall Street wanted even more revenue growth.

We'll be watching to see if new CEO Gary Kovacs can deliver that growth.