GTY Technology is a special purpose acquisition company, a “blank check” company that went public with the intent of acquiring other companies.  GTY Technology went public in 2016, raising $552 million.  Late last year, GTY announced it was simultaneously acquiring six companies.  All six companies are focused on SaaS software in the public sector market.

The Six GTY Technology Companies

In September 2018, GTY announced it was buying:

 Bonfire, a developer of cloud-based eSourcing and procurement software that helps purchasers find, engage, and evaluate suppliers and manage the resulting contracting and
performance relationships;

 CityBase, a developer of technology, payment and communication channels and aggregator of operational data that also creates websites and mobile applications for
utilities, self-service kiosks and point of sale tablets with customized solutions;

 eCivis Inc., a cloud-based grants management system provider for state, local and tribal governments that also offers writing, consulting and professional services as well as financial
and program performance tracking, cost allocation and budgeting;

 Open Counter Enterprises Inc., a builder of user-friendly software to guide applicants through complex permitting and licensing procedures;

 Questica Inc., a provider of budgeting software, performance management, and transparency and data visualization solutions; and

 Sherpa Government Solutions LLC, a provider of public sector budgeting software and consulting services.

Because these companies were acquired by a public company we can see detailed financial information about them.  Given recent events in the e-sourcing market (see here), the company that interests me most is Bonfire.

Bonfire:  Public Sector E-Sourcing

From the first column in the above chart, you can see Bonfire’s overall numbers.  Bonfire also touts  attractive unit economics in the chart below:

Bonfire represents about 15% of GTY Technology’s ARR, Revenue and Gross Profit for 2018 and 2019E.  Therefore, Bonfire should represent approximately the same percentage of GTY’s valuation.

Valuation

Speaking of valuation, GTY sports a market cap of $350 million, about 11x LTM revenue and less than 5x NTM revenue.  This valuation has two interesting implications:

• GTY’s market cap means the imputed market cap of Bonfire is about $50 million.  This is substantially less than the presumed market cap of Scout RFP, whose ARR we do not know (see here) and
• GTY is telling investors that it will achieve 138% growth in revenue in 2019, while its components achieved 43% growth in 2018.

The 43% growth in 2018 is impressive, but 138% growth for a public sector software company would be truly incredible.

I do like the public sector software market, as there have been some interesting companies built in this market, such as:

• NIC (EGOV) which has $300 million in revenue and a market cap of $900 million
• Thoma Bravo bought Deltek for $1.1 billion and then sold it to Roper Technologies for $2.8 billion four years later!
• Actua bought GovDelivery for $19 million when it had $7 million in revenue and sold it to Vista Equity seven years later for $150 million.  At that time, GovDelivery had $50 million in revenue.  (Vista has now combined GovDelivery with Granicus, another public sector software company.)
• Tyler Technologies (TYL), the grand-daddy of the public sector software space, with almost $1 billion in revenue.  Tyler has a great long-term track record of 13% CAGR at the top line and 25% at the bottom line.  TYL sells for about 7x LTM revenue.

Bottom line:  I’m going to watch this one carefully to see if the growth reaches those projected levels.  If it falters, I may be able to buy GTY a bit cheaper.  (BTW, this the same erroneous thinking I have used to miss investments in countless stocks such as Google and Mastercard.)