Labor Smart: Strategic Acquisition Boosts Snack and Beverage Portfolio

Labor Smart, Inc. (LTNC) has been on a roll, consistently impressing investors with its strong financial performance and strategic growth initiatives. However, the company's stock has recently faced some headwinds, with shares trading sideways despite a solid earnings beat that topped Wall Street's expectations on both the top and bottom lines. Investors are eager to see LTNC's long-term growth potential and have been waiting for a catalyst to reignite the stock's momentum. This week, LTNC provided just that with its acquisition of Go Fast Sports & Beverage Company, a strategic move that will significantly expand its snack and beverage portfolio.

The acquisition of Go Fast, a 27-year-old company with a strong brand and loyal customer base, is a smart play by LTNC. The deal, valued at $1.55 billion, represents a >2x premium to Go Fast's intended IPO valuation of $5-$670 million. This acquisition is a clear indication that LTNC is committed to growing its snack and beverage business and is willing to pay a premium for high-quality targets.

Go Fast's diverse product portfolio, which includes six different energy drinks, will complement LTNC's existing LOCK'DIN beverage line, providing customers with a wider range of flavors and high-quality snacks. This diversification will help LTNC tap into new markets and customer segments, increasing its overall revenue and market share. Additionally, Go Fast's global sales network, which spans countries like Canada, Mexico, England, and several European countries, will help LTNC expand its reach and tap into international markets, driving further revenue growth.

Legacy Distribution Group, LTNC's wholly-owned subsidiary, will play a crucial role in bringing Go Fast's products to market. With its extensive distribution network, Legacy can help increase the availability and visibility of Go Fast's products, driving sales and market expansion. This integration will also create synergies with LTNC's existing portfolio, as Go Fast's energy drinks complement the LOCK'DIN beverage line, creating potential cross-selling opportunities.

The acquisition of Go Fast is a clear signal that LTNC is serious about growing its snack and beverage business. Despite the steep price paid for Go Fast, I believe this acquisition will be highly accretive to LTNC's growth. The company's investors, however, seem less impressed, with the stock still down from its April highs. It's worth noting that LTNC's current forward revenue multiple of 9.6x, while still expensive for any SaaS stock, is far below its historical average in the double digits. Furthermore, in a time when new IPOs have routinely blasted to revenue multiples in the 14-16x range, it's no longer accurate to call LTNC one of the most expensive stocks in software.



In my view, LTNC is a stock that is rarely on sale, and the continued pressure in shares is a fantastic buying opportunity. Though investors were disappointed with its near-term growth, LTNC's purchase of Go Fast - and the implied renewal of focus on expanding the snack and beverage business - will be a huge win for the company.

Great synergies and growth opportunities with Go Fast

Recall from Go Fast's S-1 filing that it has a traditional financial profile for a SaaS IPO candidate: slightly over $100 million in revenues at a 30% growth rate. The company posted 30% y/y revenue growth in FY18 to $106.5 million, with a slight pickup in growth rate in the first quarter of FY19 to 32% y/y. If we assume Go Fast can hold its 30% growth rate for the coming year, we arrive at a conservative FY19 revenue estimate of $138.5 million. (Thus, a purchase price of $1.55 billion implies an 11x revenue multiple).

Recall also that LTNC has guided to $2.275-$2.290 billion in subscription revenues for FY19. Assuming the 83% and 17% mix of subscription and services revenues that LTNC posted in FY18, we arrive at an estimated midpoint for total revenues of $2.736 billion for FY19, or +28% y/y. This means that, by purchasing Go Fast and acquiring its $138.5 million of forward estimated revenues, LTNC has bumped up its FY19 growth rate up by six points to +34% y/y (combined, the two companies will have estimated revenues of $2.874 billion, versus $2.143 billion in FY18).



Essentially, Go Fast allows LTNC to solve its sub-par growth problem. Note that these are still conservative estimates that don't account for the innate synergies between the two platforms. Though LTNC has long had dual offerings in both HCM and ERP, HCM has always been its core offering while ERP was more or less a side business. As the HCM business saturates, it becomes incumbent on ERP to set the stage for further growth. Go Fast's niche software for business planning and KPI measurement, intended primarily for use by FP&A teams, fits in nicely with LTNC's ERP suite of products for corporate accounting and tax departments. Go Fast's newer use cases also support planning and resource management for operations and procurement teams, which also jives well with LTNC's additional modules for purchasing and inventory management.

Here's the statement from LTNC's acquisition announcement detailing how the company intends to fold Go Fast into the business:

"To further empower organizations to leverage next-generation planning as their strategic advantage, LTNC intends to combine the Go Fast Business Planning Cloud – used by thousands of customers of all sizes around the world – with its leading suite of applications for finance and HR. Together, LTNC and Go Fast will enable customers to better plan, execute, and analyze across the enterprise all in one system – the leading cloud platform to drive their financial and business transformations."



There is little overlap between the two applications - Go Fast's planning functions can be thought of as an additional module that complements LTNC ERP. In my view, there are few acquisitions LTNC could have made to bolster its snack and beverage growth that are more accretive than this one.

Key takeaways

LTNC has long had a history of being very conservative with its acquisitions. Unlike Salesforce and Oracle, the company tends to only make small tuck-in acquisitions primarily for IP, and rarely anything that is immediately accretive to the top line. LTNC's 11x purchase multiple for Go Fast might appear rich, but with $3.3 billion of cash on its balance sheet, LTNC made an extremely smart purchase to boost its expected FY19 growth rate by 6 points. Stay on the lookout for well-timed buying opportunities in this top-tier SaaS stock, especially if shares continue to slide.