LSI: 1Spatial takes partial ownership of key distributor

Spatial software and solutions provider 1Spatial is buying a 47% stake in Laser Scan Inc (LSI), its sole distributor across the Americas, for $2.25m in cash. It is not a simple transaction because 1Spatial has the option to acquire the remaining 53% in two tranches, (in 2016 and 2017) for a total of $2.55m in cash or shares.However, if it does not take up the option LSI has the right to buy-back the initial holding for $1.125m - half the original purchase price. 1Spatial has also announced that chairman Steve Berry has stepped down from the Board, effective as of February 2 2015, a move we assume is more than coincidence.LSI delivered net profit of $0.9m on revenue of $3.4m in the year to December 31 2013. In H1 of the current year, 1Spatial's revenue was up 33% to £10.1m (7% organic, constant currency) with adjusted EBITDA up 140% to £1.2m.1Spatial will have its reasons for stucturing the deal in the way it way it has but the value proposition is not overpowering at first sight. Management says the purpose of the transaction is to secure its distribution channel in the Americas and ensure continuity of service to its key customers, which include the US Census. Building its international business and growth via acquisition are two of 1Spatial's declared objectives (see here) and this does align with them, while husbanding its cash. While the market for geospatial data is ripening sales cycles can be lengthy which means the company needs a careful balance across investment, orders, revenue generation and cash.