Huge bid for Adapt IT
ACQUISITION: DOES NOT ENJOY EXPLICIT SUPPORT OF THE BOARD Although Huge Group wants to buy 100% of the company, it will settle for a stake below that.
Huge Group has launched a takeover bid for fellow JSE-listed technology company Adapt IT, a surprising move at face value given that Huge focuses on telecommunications and Adapt IT on software and IT services.
The all-share bid, at an offer price of R5.52/share that values Adapt IT at R795 million, does not enjoy the explicit support of Adapt IT’s board. However, it’s not immediately clear if the approach will be considered hostile by Adapt IT, whose management team is led by CEO Sbu Shabalala.
If all shareholders accept the offer, Huge Group will have to issue about 130 million new shares.
Huge Group CEO James Herbst, speaking to TechCentral on Wednesday evening after the company alerted shareholders about the offer, said that although Huge wants to buy 100% of Adapt IT, it will settle for a stake below that, too. If it is successful in buying all of Adapt IT, though, Adapt IT will be delisted from the JSE.
The offer was communicated on Wednesday afternoon to Adapt IT’s board. The board is now required, in terms of the company law, to establish an independent board to evaluate the offer, Herbst said.
The R5.52/share offer represents a 33% premium to the 30-day volume-weighted average price at which Adapt IT has traded. It is a 38% premium to Wednesday’s closing price.
It is, however, well below Adapt IT’s share price in 2016, when it peaked above R15/share before a multi-year disintegration in its valuation.
Swap ratio
“Based on a reference price of a Huge Group share of R6.12, Huge Group is prepared to acquire one Adapt IT share for a purchase consideration of R5.52 to be settled by the delivery of 0.9 Huge Group shares, which is commonly referred to as the swap ratio,” Huge Group said in a statement.
“Adapt IT shareholders have seen over a 240% increase in the value of their shares since 28 September, when their shares touched a 52-week low of R1.17.”
Huge Group said Adapt IT shareholders can tender some rather than all their shares and no minimum acceptance level has been set. “Owning 100%, or absolute control, is not critical in this instance,” said Huge Group COO Andy Openshaw. “Therefore, for the time being, we don’t want to be involved in an offer with unnecessary hurdles, thereby diminishing our ability to succeed.”
Herbst added that Huge Group will accept “any shareholder tendering part or all their shares”.
“The largest shareholder in Adapt IT holds just over 10%. If 20% of the Adapt IT shareholders tender half their shares in this offer, we will be pleased. We might even become the single largest shareholder; it will give us influence and possibly participation at a board level.”
A combined group would have close to R2 billion in revenue and operating profit of about R333 million. “The business strategy of Adapt IT, which explicitly targets increasing annuity revenue from software-related products and services, is aligned to the business strategies of Huge Group’s existing operating companies to grow annuity revenue from products and services related to connectivity,” said Huge Group chairman Duarte da Silva.