HelpSystems Buys GlobalScape For $217 Million For File Transfer Expansion
August 17, 2020 Timothy Prickett Morgan
Secure file transfer is a thing, particularly with companies working remotely, and this is why the investors behind the HelpSystems conglomerate are shelling out a whopping $217 million, or $9.50 per share, to buy a publicly traded rival in the secure managed file transfer tool arena called GlobalScape.
The deal offered by HelpSystems and agreed to represents a 16 percent premium over the market capitalization of GlobalScape prior to the announcement of the acquisition, and the deal will be funded by cash on hand at HelpSystems plus new debt that is backed by Jefferies Finance and credit funds affiliated with Charlesbank Capital Partners. It is not clear how much is being offered in cash, but in the current environment, money is cheap to borrow and cash is king, so we expect it to be a very debt heavy deal.
The lawyers are circling, with several firms specializing in class action lawsuits saying that they want to file to compel a better deal be made. In late 2017 through early 2019, the company’s shares were pretty steady at somewhere around $3.50 to $4.00 a share, or a third to half the market capitalization GlobalScape had before the deal was announced on July 17. But in early 2019, as the company’s profits nearly quadrupled, the company’s stock kissed $14.00 a share, and of course that was before the coronavirus pandemic hit and changed everything. The lawyers are just sore no one offered a deal back then when they might have been able to command a higher price than the $217 million being offered.
GlobalScape was founded in 1996 in San Antonio by Matt Goulet, who was its president and chief executive officer. The company is public, so we know a bit more about it than we do with other HelpSystems acquisitions. This seems like a pretty good deal for a company that does around $10 million in sales a quarter and brings roughly a third of its revenue the bottom line here in 2020. That’s about as good as it gets in the software world. In fiscal 2019 ended in December, revenues were $40.3 million, up 17 percent, and net income was $13.2 million, a factor of 3.6X larger than the prior 2018 year. The growth has cooled off a bit in 2020, but that is to be expected, all things considered. The company had $12.5 million in the bank and clean books as the second quarter ended in June, and hence, this is a good time for HelpSystems and its backers to step in and acquire it.
It has been a rough couple of years for GlobalScape on the financial and management front, even as the business has been growing.
In August 2017, the company announced that its audit committee had been looking into “improper arrangements” with customers that overstated accounts receivables in 2016. The company was traded on the New York Stock Exchange at the time and was in the doghouse for filing its quarterly reports late as it went through its books with a fine-toothed comb. In February 2018, NYSE, which owns the American Stock Exchange, and GlobalScape worked out how it would get compliant and still keep trading, and that months its chief financial officer resigned. After the numbers were redone, the company posted some net losses, which were not the usual for GlobalScape, but in 2018 the company was focused on its Arcus Enhanced File Transfer cloud product and moved forward. It also bought a huge chunk of its shares off the market through a modified Dutch auction tender offer. In April 2019, as the company was getting itself back on track, Goulet died unexpectedly. This is a tragic event for any company, but particularly hard on relatively small companies, even if they are publicly traded. Maybe especially so. Current and past management and directors of GlobalScape held 33 percent of the shares, and approved the merger with HelpSystems (which is really an acquisition), which is expected to close in the third quarter.
Of course, HelpSystems bought Linoma Software four years back for its GoAnywhere MFT product, and Mike Devine, vice president of the company, said that this acquisition will not in any way affect the GoAnywhere MFT business. “It is growing remarkably well and we will continue to invest in it aggressively,” Devine tells us.
When we asked if this was a backdoor way for HelpSystems to go public – this is how Dell went public again through its VMware acquisition, so it is not a crazy idea to ask – Devine said quite the opposite was the plan, and that HelpSystems will remain private and GlobalScape will cease to be traded publicly and will be absorbed into the conglomerate.
We wonder now if HelpSystems will, thanks to all of its acquisitions and organic growth, pass through $150 million or even maybe $200 million in sales after the GlobalScape deal closes. . . .