Appen’s $1.2b deal dies as fast as it startsYolanda RedrupMay 26, 2022 – 5.36pmAppen’s chief executive Mark Brayan. Steven SiewertnoneFormer ASX-listed tech market darling Appen has been left high and dry by its Canadian suitor Telus International, less than 10 hours after the company announced the unsolicited $1.2 billion non-binding indicative bid.Appen’s chief executive Mark Brayan. Steven SiewertnoneThe board of the local artificial intelligence data services company had said earlier on Thursday it was open to negotiate with Telus, if it boosted its $9.50 a share bid and signed a confidentiality agreement.But just hours after Appen’s intentions had been laid bare, Telus revoked its proposal on Thursday afternoon in a big surprise to Appen, which believed it was poised to sign the agreement.The multibillion dollar Canadian customer experience and IT services company did not provide any reason for the sudden change of heart.Sources close to Appen said the companies had been meaningfully engaging for a few weeks, and the withdrawal by Telus took them by surprise.The rapid withdrawal is reminiscent of private equity giant CVC walking away from Brambles just a day after the transport and logistics company confirmed there was an unsolicited offer on the table earlier this month.Street Talk broke the news that Appen was being pursued by a potential acquirer on Wednesday evening, before the proposal was confirmed by Appen on Thursday morning.Appen shares surged more than 29 per cent to $8.27, pushing its market capitalisation back above $1 billion, before it entered a trading halt on Thursday afternoon, citing “developments” regarding Telus’ proposal.Appen CEO Mark Brayan was left confused by Telus’ withdrawal on Thursday. James BrickwoodnoneAppen, which is led by chief executive Mark Brayan, began in the spare room of the Gordon home of its founder, Julie Vonwiller, in 1996. She and her husband Chris Vonwiller are its second-largest shareholders. Dr Vonwiller, a linguist, left her research position at The University of Sydney to start Appen.It provides the world’s largest technology companies with crowd-based AI training data and an annotation platform to improve the accuracy of their algorithms, which enable everything from targeted advertising to search engine results and image recognition.It has more than 1 million workers who annotate the data, but it has been investing in automating more of these processes, speeding up project delivery and lowering the cost, to attract a more diversified client base. After expanding to China a few years ago, it has also recently had success growing its customers in the region.Once considered one of the fastest-growing Australian companies in the vein of Xero and WiseTech, the beleaguered business has lost more than 80 per cent of its value in less than two years after a series of earnings downgrades, and more recently, the market wide tech sell-off, which has resulted in the S&P/ASX All Tech Index losing 33 per cent in the past six months.The business has been hit in the past year by lower spending on advertising-based AI projects by the big tech companies including Facebook and Google, thanks to data privacy changes from Apple, which forced them to redirect spending away from intrusive user tracking technology.While there is no indication as to what caused the sudden change of heart, as part of its announcement on Thursday, Appen also provided a trading update, which could have been the cause for alarm. At this point, Appen’s revenue has slipped below last year’s levels.Its first-half earnings before interest, tax, depreciation and amortisation was also expected to be materially lower in the first half, thanks to the fall in revenue and its investments in the company’s product, technology and office transformation.But, its year-to-date revenue, plus orders in hand for delivery, was up 14 per cent on this time last year to $US297 million ($418.7 million) and it anticipates a greater revenue and EBITDA skew toward the second half of the financial year, than in the prior 12 months.Another possibility is that the withdrawal is a tactical move on behalf of Telus, and the would-be buyer resurfaces.Telus’ interest in Appen is logical. The $US6.3 billion business owns its main rival Lionbridge, having acquired it for $C1.2 billion ($1.32 billion) in a debt and equity deal, just weeks before it was due to go public in 2021.Despite Lionbridge being about half the size of Appen, more favourable market conditions meant Telus was willing to pay a substantially higher multiple than the one it had been discussing with Appen.A note from Citi estimated the Lionbridge deal was done at a 16 to 20 times EBITDA multiple, while the $1.2 billion price tag gave Appen an EBITDA multiple of about 11 times.Despite this, analysts believed if Telus had not walked away, there would have been sufficient interest from both investors and the board to make a deal happen.“The uncertain outlook on the back of Apple’s opt-in privacy changes and lack of revenue visibility makes conviction on APX (Appen) difficult,” RBC Capital Markets Australian technology analyst, Garry Sherriff, said.Neither Appen’s Mr Brayan, nor its chairman Richard Freudenstein (who was appointed in 2021) were available to comment on Thursday.But both leaders will have to front investors on Friday at Appen’s annual general meeting.The company’s largest shareholder is US-based global deep value investor Mondrian Investment Partners, which has been increasing its stake in the company since last year, going substantial in November. It is currently sitting on a 9.4 per cent stake.Dr Vonwiller and her husband Chris – the former CEO and long-time chairman of Appen – still own 7.34 per cent of the business.AFR
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