AFR also reckons there will be higher bids ...Rhipe a juicy...

AFR also reckons there will be higher bids ...

Rhipe a juicy target, not just for Crayon
Sarah Thompson, Anthony Macdonald and Yolanda Redrup
Jul 2, 2021 – 12.15pm

ASX-listed software licence seller Rhipe is looking juicy, with the market anticipating more bids for the $404.3 million business.

The company emerged as the takeover target of Norwegian heavyweight rival Crayon earlier this week, when it announced it was raising capital to fund an acquisition. Other parties could emerge as bidders for Rhipe. Rhipe confirmed it had received a non-binding, conditional proposal from Crayon for $2.50 per share on Thursday.

While the offer came at a 20 per cent premium on its last close before the offer was announced, and a 30 per cent premium on its one month volume-weighted average price, the bid is considered cheap by Shaw and Partners senior analyst Jonathan Higgins, who accurately pre-empted the proposal in a note on Monday. Higgins said the proposal was opportunistic in regards to price, given the company is at a ”cyclical low” in earnings, despite continued revenue and profit growth.

“Acceleration in run-rates and easier growth is coming,” he said.

“Our preliminary estimates put Rhipe - if being acquired at the peers’ multiple with our estimate of synergies - at $2.66. With a more typical control premium on top of this, that would equate to $3.40. We would expect further interest (if around) to generate a price closer to $3. We note this excludes any vendors that may be brought to Rhipe.”

Rhipe acts as a middleman between big tech companies like Microsoft, Trend Micro, DocuSign, Symantec and Citrix and resellers who sell the software to their business customers. Most of its business is concentrated on Microsoft and it is one of only 12 globally managed account partners for the big tech giant.

The non-binding, conditional bid from Crayon was made at a 15 times enterprise value to operating profit multiple based on Higgins estimates. He said the bid also undervalued Rhipe because it did not price in its investments ahead of growth which are expected to yield fruits in the next two years. One of the largest opportunities for an acquirer will be to extend its footprint in the re-seller market beyond Microsoft.

For Crayon, which has just added an Amazon Web Services practice, this would be a logical opportunity.

“Any larger company (such as CRAYN) has further practices to plug in. These would create immediate and likely material profit synergies” Higgins said.

“We see multiple parties as being interested in RHP strategically, with the scrip, size and BS power. In our view these parties (listed) could include: Arrow Electronics, Data#3, Dicker Data, Insight, Synnex and a host of others.”

Rhipe granted Crayon non-exclusive due diligence, suggesting it’s open to a satisfactory offer, but in the meantime it’s firming up its options.