Compliance and red tape rules software supplier Ideagen (IDEA:AIM) has agreed a take private deal that will see shareholders handed 350p in cash for their stock, but there remains an intriguing prospect of a rival offer emerging.
Alongside news that the UK business is recommending the deal struck with private equity firm Hg, the company also said that it remains in talks with private equity peer Astorg, to which Ideagen has now opened its books for due diligence investigation.
Ideagen shares jumped 46.5% on Monday (9 May 2022) to 356p, implying that the markets see a decent chance that Astorg, or another buyer, could yet launch a rival and higher bid.
That would not be hugely surprising. While Hg’s offer has come in a large premium to 217p level at which the shares had been trading before bid interest was known, Ideagen’s valuation has come under enormous pressure this year as investors traded tech stocks for safe haven assets.
Ideagen were 325p just eight months ago.
PREFECT PRIVATE EQUITY FIT
This is exactly the type of business that private equity likes to buy. There are strong structural growth drivers backing the compliance and red tape rules technology industry, with increasing complexity needing the tech tools that Ideagen provides, such as information management software solutions to highly regulated industries, such as healthcare, life sciences, financial services, aerospace and defence.
Its product suite includes things like quality control, health and safety, environment compliance, audit, risk and much else across what the company refers to as the governance, risk and compliance market.
The company has high levels of recurring contracts (61% of the first half’s £34.2 million), throws off meaningful cash and has executed its acquisitive growth strategy very well.
‘Following initial reports of take private interest in Ideagen last month, we emphasised the fact that this could be the start a wave of take privates in the coming months on the back of the broad sell-off of technology stocks,’ said Megabuyte analyst Cameron Naylor.
HIGH QUAILTY TECH PREMIUM
‘Hg’s offer for Ideagen highlights that despite the downward pressure on public market valuations, private equity is prepared to pay similar prices to before the sell-off for the high quality, recurring revenue-based businesses in which they like to invest in.’
The Hg deal values Ideagen at approximately £1,058 million, implying an enterprise value of £1,092 million. That’s equivalent to a multiple of 11.9-times enterprise value to annualised recurring revenue and a multiple of 33.9-times EV to adjusted EBITDA (earnings before interest, tax, depreciation and amortisation, according to Shore Cap calculations.
‘With Astorg still potentially weighing up an offer and the shares trading up this morning this story might not be over yet,’ added Megabuyte’s Naylor.
