Descartes drains the bank

Contact: Tejas Venkatesh

Supply chain management vendor Descartes Systems Group is shelling out $33m of its own and its creditors’ money to acquire relatively small KSD Software Norway, which provides customs and transportation management software (KSD does just about $10m in annual recurring revenue). Although a bit of a financial stretch, the deal nonetheless makes sense, since KSD’s software will further help Descartes’ shipping customers navigate the complex European compliance market, which is comprised of diverse regulations, languages and systems.

To pay for the $33m transaction, Descartes is drawing $13m from its treasury (which represents one-third of its total cash balance as of January 2013), as well as $20m from a line of credit. In March, Descartes entered into a $50m credit agreement with Bank of Montreal that includes a $48m revolving facility that can be drawn on to accommodate future M&A activity. For the time being, the KSD buy effectively halves Descartes’ ability to acquire additional companies with this facility.

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