Long SSNC, Price Target $49, 46% Upside, 24% IRR Over 3 Years. Summary
Value accretive roll-up company that buys assets at ~11x EBITDA pre-synergy, ~7x EBITDA post-synergy, that is trading at trough multiple.
SSNC has a decent runway of organic growth driven by 3rd party private equity FA and regulatory demand.
Business Description
SSNC is the 2nd largest fund administrator in the world and the only one who provides services across front, middle and back office. Due to the nature of the industry and service, revenue and clients are typically very sticky with >90% recurring revenue. This is because SSNC sells a product that is mission-critical, low-cost, necessary, but is extremely hard and costly to switch or exit. Due to revenue recurring nature, SSNC has
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We believe there are still markets that SSNC has yet to penetrate. The growth of the PE market will be the next key driver for SSNC in terms of organic growth and acquisitions opportunities.
2) In the long run, we think that SSNC will benefit most from the consolidation of the industry. This is due to SSNC’s ability to leverage this consolidation across its business model. SSNC will have a great value proposition to funds with the ease of having an Omni-channel front, middle and back office service.
Risks
1) M&A
The thesis revolves around SSNC's ability to continue acquiring at cheap multiples and expanding margins. The failure to acquire at such rates going forward or debt becomes more expensive will affect SSNC's valuation.
Mitigation: Though we are unable to predict the future as to which company SSNC will be acquiring, with more regulatory uptick and increasing cost of having an in-house FA, more and more banks are looking to sell off.
2) PE penetration rate slower than expected
The PE penetration growth rate will be the one upcoming revenue drivers, any slowdown in the penetration rate will slow down organic