Thursday, 31 January 2008

BrainHunter is not sold...

Brainhunter Inc.
(BH: TSX)

Following the January 22nd announcement from Brainhunter on its deal with Workopolis, some erroneous news reports showed up that “Brainhunter was acquired by Workopolis”. This is not the case.

Workopolis is acquiring Brainhunter’s Canadian and U.S. Job Board business with BH receiving approximately $10 million cash over a 12-month period. It’s expected that over 90% of the purchase price will be paid to BH by this March with the remainder based on “transition milestones”.

The transaction with Workopolis was related only to Brainhunter’s Job Board Network in Canada and the United States representing approximately 1.3% of Brainhunter’s consolidated revenue for fiscal 2007.

Brainhunter will continue to operate and develop its Job Board network outside North America and to be the technology provider to Workopolis in North America. BH will of course continue to operate and grow its staffing business, which accounts for the vast majority of its $224 million in revenues reported in Fiscal 2007 (Sept. 30).

Workopolis is purchasing the following:

  • Perpetual License - Workopolis receives a perpetual license to use Brainhunter's CareerSite Technology Platform in Canada and the United States. Brainhunter will continue to operate and develop its Job Board activities outside these jurisdictions.
  • Client Relationships - Workopolis will take over approximately 100 Client relationships where Brainhunter's CareerSite Technology Platform and operations and marketing infrastructure supports the Client's Job Board activities.

  • On-going Technology Support - Brainhunter will continue to support the CareerSite Technology Platform after closing pursuant to a 12-month Transition Services Agreement and a 24-month Development Services Agreement, both of which are renewable.

The transaction also includes the transfer of key longstanding Brainhunter employees to ensure the transition and ongoing management is as smooth as possible.

This transaction stems from a strategic decision by Brainhunter to focus its business initiatives and resources in areas where Brainhunter can be a leading player, which is in the professional staffing area.

As we wrote above, the $10 million to be paid is for a revenue stream that represents just 1.3% of total revenues.

All of this begs the question of what will be done with the millions to roll into Brainhunter’s treasury? In our discussions with senior management, the funds will be put against the company’s operating line, which at the end of Fiscal 07, stood at approximately $26 million.

One should begin adding up the pieces to what is taking place with Brainhunter and question its market capitalization of about $25 million.

1) It grew revenues in Fiscal 07 slightly higher than the $220 million than was expected.

2) Considering F06 was $166 million in revenues, the sales jump was even more notable by the fact this was all organic growth.

3) EBITDA was a little less than the $8 million that was expected coming in at $7.76 million but far greater than the $3 million in F06.

4) Add this latest deal to the financial picture with the bonus being that interest saved is money that flows to the bottom line.

As cash flow improves, sales increase and debt falls, what could Brainhunter be worth in the future should a buyer come along?