Castleton Technology plc

Software and managed services to the public not-for-profit sectors

Visit the Castleton Technology website
Status Realised
Period Jun 11 – April 20
Headquarters Birmingham, UK
Sources: Takeover price LSE, company financials FY19

Company
Castleton is a leading provider of Housing Management solutions to the Social Housing sector. It was formed in 2013 following its demerger from Redstone and grew via an acquisition led strategy to rapidly expand within its chosen sector as well as into new complementary verticals.

Investment rationale

  • Expanding market for not-for-profit sector automation through software adoption
  • Long term loyal embedded customer base with up-sell / cross-sell growth opportunities
  • Opportunity for market share growth from replacement of legacy competitors
  • High levels of repeat revenues (>70%)
  • Strong operating margins and significant operational gearing benefits from new revenues

Realisation
We accepted a 95p per share, £83m recommended cash offer for Castleton in April 2020 from MRI Software LLC, a private equity backed industry consolidator. The purchase price represented a 43% premium to the prevailing share price and represented valuation multiples of 3.5x historic revenues, 13.5x historic EBITDA and a free cashflow yield of 4.8%.

Kestrel involvement, actions and impact
After acquiring an initial stake in 2013, we gradually built our holding through open market purchases as well as participating in primary issues to fund the Company’s acquisition strategy. Our holding peaked at 22% in 2017.

During the course of our investment, we encouraged management with their buy and build strategy. Once the Company achieved critical mass in 2018, we advocated that a process be commenced to solicit a trade buyer that could provide an attractive cash exit for all shareholders.