Athlete performance technology provider Catapult Sports has purchased London-based SBG Sports Software for $40 million, bringing the live data and video developer in house along with its client base of auto racing and European soccer teams.
“We really believe that data and technology will change the face of sports, and combining the organizations will not only accelerate that but bring customer value in a way that isn’t quite done yet,” Catapult CEO Will Lopes said.
Catapult, which is publicly traded on the Australian Stock Exchange, is paying half the purchase fee in cash and the rest in Catapult stock to the owners of privately held SBG, with lock-up provisions extending up to three years, according to a presentation accompanying the announcement.
“We’re going to be able to produce an end-to-end ecosystem,” said SBG CEO Gareth Griffith, in a joint phone call with Lopes. “It’s going to make the flow of data and video analysis—from acquisition through analysis and to sharing with the players, coaches and maybe even with the fans—much more efficient.”
Griffith will stay with the company and will continue to focus on managing SBG’s existing client base and technology. Formed in 2008 in collaboration with Mercedes F1, SBG uses up to 130 cameras per car race and combines it with car telematics to produce race scenarios and provide insights and visualizations to help teams improve performance during competition. The business has a strong business in F1, Formula E and IndyCar. In recent years it extended its technology to soccer, gaining 70% of English Premier League and 40% of Bundesliga teams as clients, according to Lopes. The company also has rugby teams using its tech and has recently developed a system for basketball, Griffith added.
“The primary focus is to ensure that we bring their solution to our existing clients,” added Lopes. Catapult makes 70% of its $67 million in annual revenue from American sports team customers, which includes every NFL team, as well as multiple teams in the NBA, NHL and NCAA. Lopes, who became Catapult CEO in late 2019, is refocusing the business on recurring subscription revenue and away from one-time sales of technology. “The secondary focus—which will probably take a little longer, 12 to 18 months—is how do we help the technology that SBG has created and expand it into new sports? Particularly those that I think are going to be important in North America, [such as] basketball, hockey and American football.”
To help finance the $40 million purchase, Catapult is selling $40 million in shares in a placement expected to finish next week. Half the money will cover the cash being paid for SBG, with most of the rest going to technology, data science and product expansion. Catapult’s shares last closed at AUD $2.18, up about 10% year-to-date.
The purchase price is more than 10 times the annual sales of SBG, a total of $4.5 million, all from subscriptions, according to Catapult’s presentation on the deal. The purchase price is based partly on the SaaS rule of 40, said Lopes. The rule is used by some venture capitalists to measure a healthy software-as-a-service business, positing that its growth rate and its profitability margin should add up to be 40% or higher. In this case SBG’s annual sales growth is 28% and its earnings before interest, taxes, depreciation and amortization, a common substitute in technology for bottom line profit, is also 28%. “More impressively they have a financial system that brings them a gross margin of 96%, and they’re doing so without having heavily invested in their growth,” added Lopes. The executive also cited SBG’s customer retention rates as a positive, including average client tenure of five and a half years.
Griffith said the combined companies should be able to drive more innovation. “My background is in television and film special effects, in the distant past, and an interesting convergence is that a lot of features people are requesting in these tools are things we were doing years ago in television—clear visualization that we’re used to seeing in television graphics,” for the combined companies’ athlete, coaching and management staff customer base.