On Monday, UBS adjusted its price target for Software (ETR:SOWGn) AG (SOW:GR) (OTC: STWRY), decreasing it to €11.00 from the previous €12.00, while retaining a Buy rating on the stock. The firm's decision comes amidst discussions of Software AG's proposed merger with Crayon, a move that is expected to generate significant synergies.
The analyst at UBS noted that the synergy target of CHF 80-100 million, which is 4.6-5.7% of the projected net revenues for 2025, is in line with past targets set by Software AG. The firm had previously aimed for CHF 40 million in synergies, which was equivalent to 550 basis points of Gross Profit, from its acquisition of Comparex in 2019.
The proposed multiple for the Crayon deal is 10.9 times the consensus 2024 estimated EV/EBITDA, which is similar to the 10 times multiple paid for Comparex.
However, the timing of the deal has raised questions among some investors, especially since Software AG's stock has been underperforming, with a year-to-date decline of 56% prior to the deal speculation. This contrasts with Crayon's shares, which have seen a 52% increase over the same period. The analyst pointed out that Software AG's long-term forward EV/EBITDA average is 8.7 times, while Crayon's is 11.4 times, marking a significant gap of 31%.
The UBS analyst also highlighted that the concurrent ending of private takeover talks complicates the timing of the proposed merger. This is particularly relevant given the management's acknowledgment of go-to-market challenges and potential headwinds in 2025 due to changes in Microsoft (NASDAQ:MSFT) incentives on Enterprise Agreements.
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