So should we worry about EagleView. EagleView is not listed in its own right but was sold to private equity in 2015
Below is an assessment of EagleView from Moody's in June 2015, just after the business was sold to private equity firm Vista Equity Partners
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Rating Action:
Moody's assigns B3 CFR to EagleView Technology, B2 to first-lien credit facilities, Caa2 to second-lien facility; outlook stable
Global Credit Research - 13 Jul 2015
Approximately $360 million of new debt rated
New York, July 13, 2015 -- Moody's Investors Service assigned to EagleView Technology Corporation ("EagleView" or the "company") a first-time B3 Corporate Family Rating (CFR) and B3-PD Probability of Default Rating (PDR). Concurrently, Moody's assigned a B2 rating to the proposed first-lien credit facilities, consisting of a $240 million senior secured term loan and $20 million senior secured revolving credit facility (RCF), and Caa2 rating to the new $100 million second-lien senior secured term loan. The rating outlook is stable.
Proceeds from the credit facilities plus approximately $411 million of common equity from funds managed by private equity firm Vista Equity Partners ("Vista") will be used to finance the leveraged buyout (LBO) of EagleView for a net purchase price of approximately $715 million (excluding transaction fees, expenses and balance sheet cash). Initially, the new debt instruments will be issued by a newly-formed entity named Phoenix Merger Sub, Inc. This entity will subsequently merge into EagleView, which will become the surviving issuer following transaction closing.
Ratings Assigned:
...Issuer: EagleView Technology Corporation
Corporate Family Rating -- B3
Probability of Default Rating -- B3-PD
$ 20 Million Senior Secured Revolver due 2020 -- B2 (LGD-3)
$240 Million First-Lien Senior Secured Term Loan due 2022 -- B2 (LGD-3)
$100 Million Second-Lien Senior Secured Term Loan due 2023 -- Caa2 (LGD-5)
The assigned ratings are subject to review of final documentation and no material change in the terms and conditions of the transaction as advised to Moody's.
RATINGS RATIONALE
The B3 CFR reflects EagleView's small size, high pro forma leverage, lack of meaningful international diversification, exposure to the cyclical housing market and majority ownership by a private equity sponsor. The rating is supported by EagleView's position as the leading provider of high resolution aerial imagery and 3D measurement software solutions to government and commercial customers with virtually no significant competition, long-standing and loyal customer relationships, good revenue visibility and an "asset-lite" operating model with a history of profitability and free cash flow generation. EagleView's low production costs for image capture combined with its patented technology, cumulative R&D spend and extensive image library help establish a scalable business model with good operating leverage.
Pro forma for the LBO, leverage is roughly 8x total debt to EBITDA, which is high for the rating category (as of March 31, 2015, incorporating Moody's standard operating lease adjustment and stock-based compensation expense, but excluding non-recurring litigation costs and transaction fees). However, we believe the business can accommodate a more leveraged capital structure due to EagleView's good revenue visibility and history of positive free cash flow generation. This is buttressed by a high margin services-based revenue model characterized by multi-year contracts and 99% retention rates in the government business, high reoccurring revenue streams and high-demand products embedded in customer workflows, which collectively create a loyal client base. De-leveraging is expected to be fueled by organic revenue growth and EBITDA expansion given the favorable opportunities for further market penetration and growth from new verticals. Barring another leveraging event, this should reduce total leverage by mid-2016 to the 6.5x area, consistent with the median leverage for B3-rated global cross-industry peers.
Seasonal revenue variation from government and commercial customers cause free cash flow to be weakest in the fourth fiscal quarter and strongest in the second fiscal quarter. Despite this unevenness, we project EagleView will convert around 30-40% of EBITDA to positive free cash flow (assuming no cash distributions) enabling it to comfortably meet cash needs. The company is expected to maintain good liquidity with cash balances of at least $20 million and full access to the $20 million revolving credit facility.
Rating Outlook
The stable rating outlook reflects our view that the US economy will continue to grow modestly to support organic revenue growth in the mid-single digit range with 30-35% adjusted EBITDA margins resulting in de-leveraging to the 6.5x area (Moody's adjusted) over the rating horizon. We project positive free cash flow generation of roughly $15-20 million over the coming year (assuming no dividends).
What Could Change the Rating -- Up
An upgrade could occur if EagleView exhibits revenue growth and EBITDA margin expansion leading to consistent and increasing free cash flow generation and sustained reduction in total debt to EBITDA leverage below 6.0x (Moody's adjusted) with free cash flow to adjusted debt of at least 5%. The company would also need to maintain a good liquidity position and exhibit prudent financial policies to be considered for an upgrade.
What Could Change the Rating -- Down
Ratings could experience downward pressure if financial leverage is sustained above 8.5x (Moody's adjusted) or if EBITDA growth is insufficient to maintain positive free cash flow generation. EagleView could also be downgraded if market share erodes, services revenue deteriorates, liquidity weakens, or the company engages in leveraging acquisitions or significant shareholder distributions.
Please see the credit opinion on
www.moodys.com for additional information on EagleView Technology Corporation's ratings.
The principal methodology used in these ratings was Business and Consumer Service Industry published in December 2014. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on
www.moodys.com for a copy of these methodologies.
Headquartered in Seattle, Washington, EagleView Technology Corporation is a leading provider of 3D aerial measurement services to the government, property & casualty insurance and residential construction markets. The company has over 400 employees and operates primarily in the US. Reported revenue totaled about $137 million for the twelve months ended March 31, 2015
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So purchase price of $715m USD and borrowings of around $360m USD in 2015. Business may have grown in value since 2015, but still pretty highly geared.
Revenue in March 2015 of $137m USD.
Say business size and revenue has grown at 20%pa (might be a bit generous with NEA biting at their heals) gives company value of $1039m USD and at $1US =$0.78AU, company value $1.32bn AUD. Likewise revenue increases to$197 USD, $253 AUD
Value of NEA is $287m AUD at today's share price, and revenue for 2017 looks like being about $41m AUD.
So although EagleView is substantially larger than NEA (about 5-6 times) it is not a monster. Also it is very highly geared whereas NEA has no borrowings. NEA has the oblique imagery already out in the market.
On this basis, I think the EagleView/Spookfish alliance will struggle to hold NEA off. I look forward to the next 5 years with interest.
