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Procore (NYSE: PCOR) is a construction management software company that has been in the public market for just under six months. Despite the relatively short period as a public company, it didn’t take long for Procore to make a splash.
Two weeks ago, the company announced that it had signed a definitive agreement to acquire lien management firm Levelset for $ 500 million – let’s see why.
Image source: Getty Images
What does Levelset do?
Before diving into the operations of Levelset, it’s worth explaining why the company exists in the first place.
When it comes to payments, the construction industry is quite unique. In Procore’s press release announcing its acquisition, the company said the construction industry has a “median of 90 days of unpaid sales and 74 days of unpaid debt, the slowest of all industries surveyed across the country. world”.
Given this complexity and delay in the payment process, a tool often used and used by construction groups is known as a lien, specifically a mechanic’s lien. This tool ensures that parties involved in a construction project are paid appropriately for their work using physical property as the medium.
But filing a mechanic’s lien isn’t very easy either. In order for an individual or group to file one, the group must remain compliant. Being compliant requires following extensive procedures with multiple deadlines that may vary from state to state. This is where Levelset fits in.
Levelset hosts more than 3,300 customers who use the platform to stay up to date and manage their privilege rights. Not only does this keep the privilege of Levelset customers compliant, it also allows them to get paid faster, thus avoiding cash shortages.
While it remains to be seen what the actual integration of Levelset into Procore’s platform will entail given that Levelset has already been a market partner for over three years, it’s hard to imagine that the over 11 000 Procore customers are anything but enthusiastic about seeing the privilege management tools offered as a new feature.
What does this mean for the shareholders of Procore?
According to the press release announcing the purchase, Procore will pay $ 425 million in cash and $ 75 million in shares to fund the transaction. While this may seem like a big acquisition for a newly publicized company, Procore is still expected to have plenty of cash as it recorded over $ 1 billion in cash and cash equivalents on its balance sheet in the last quarter. Not to mention that the company already has positive cash flow: Procore posted $ 21 million in free cash flow for the first half of this year.
While it is unclear whether Procore paid a fair price given that Levelset has not released any publicly available financial results, there is no doubt that Levelset performs a critical function. According to Levelset CEO Scott Wolfe, Jr., “Over 250,000 users have deployed Levelset on more than 6.5 million construction projects. As an even further validation of customer satisfaction, the company shows an average Net Promoter Score of 9.3 out of 10.
Good on paper
Overall, this acquisition should serve as an additional layer of functionality to Procore’s already strong offering. Procore provides a complete solution spanning the entire project lifecycle, from preconstruction to closure, and Levelset can help resolve customer issues.
While Levelset certainly seems like a perfect fit for the Procore platform, there is always the possibility of overpaying. To get a better idea of ​​the acquisition price, investors should closely monitor the upcoming quarterly conference call for any potential management commentary on Levelset’s financial information.
This article represents the opinion of the author, who may disagree with the “official†recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.
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