Overall, given the potential for scaling and rolling-up smaller software businesses onto a larger platform to generate significant returns, Temasek's interest in Course5 makes strategic sense.
What does AltG Investment Index tell us about Course5?
This is a classic Value Creation opportunity focusing mainly on Free Cash Flow growth. For the reported numbers of 2020, the EBITDA Margin at 11% was extremely low given it is a software business. As a software company, it is reasonable to aim for a higher EBITDA margin, as the industry is typically associated with high margins due to low marginal costs of production. The business must aim to increase the EBITDA margin from 11% to 25% in the next 3 years.
What should Course5 do to boost EBITDA Margins and growth?
Comparing Course5's EBITDA margin to competitors like SG Analytics and ZiMetrics Technologies, which have EBITDA margins of 25%, suggests that Course5 has significant room for improvement by:
Capital Allocation will create value by Rolling Up smaller businesses with EBITDA margins of 25% and higher and integrating them into Course5's platform to boost margins via growth and cost-cutting.
Analyse their product-margin mix to eliminate low-margin products: By eliminating or de-prioritizing low-margin products, Course5 can focus its efforts and resources on those that generate the highest returns.