Investors like nothing better than a company-transforming earnings-enhancing acquisition. Cybersecurity software provider Kape Technologies (KAPE: 415p) has delivered exactly that, agreeing to pay $936m (£683m) for ExpressVPN, a leading provider in the digital privacy space with more than 3m active users across 180 countries.
Over 40 per cent of ExpressVPN’s users are based in North America, which scales up Kape’s global offering, and almost half its 290 employees are R&D engineers, thus adding valuable expertise. There are also material opportunities to cross-sell and generate cost savings by combining the two groups which will service 6m paying customers. ExpressVPN is fast-growing, reporting revenue of $279m and cash profit of $74.8m in 2020, both metrics up by more than a third year on year.
Kape is now forecast to deliver cash profit of around $172m in 2022, up from $74m expected in 2021 and $38m in 2020. When I included the shares, at 47.9p, in my 2017 Bargain Shares portfolio, Kape was making cash profit of $8m. Given the structure of the deal, analysts expect earnings per share (EPS) of 41c (30p) in 2022, implying 61 per cent year-on-year growth. On a forward price/earnings (PE) ratio of 13.8, the rerating has further to run.