...NEA was a featured stock here early this month. Nearmap shows tech bargain hunting is on in earnest
The bid for former ASX darling Nearmap shows tech bargain hunting is on in earnest, from sharemarket investors and private equity alike.
Aug 15, 2022 – 11.29am
There’s the tech sector plot point. Does an offer like this, for a former darling of the ASX’s tech sector, suggest the industry has been sold off too hard, and it’s time for investors to start surveying the wreckage for bargains?
There’s the private capital thread. Here’s another big US tech group from San Francisco, hitherto unknown in this country, shrugging off concerns about the external environment to pick up a bargain Down Under. Is this the start of a broader private equity raid on Australia?
And then there are the deal tactics questions, and a related one on disclosure by public companies. Nearmap has been sitting on this bid since July and, having firmed it up – and increased it substantially, according to the company – it has chosen to announce its existence just days before it releases its annual results on Wednesday.
Should Nearmap have disclosed the deal earlier? Is Thoma Bravo set to close this deal? Or is Nearmap founder and CEO Rob Newman trying to flush out another bidder by setting a floor price for a potential auction?
Of course, the plot line that really matters for Nearmap investors is the one on the company’s share price chart. The stock surged 30 per cent on Monday morning to as high as $1.98 after the deal was disclosed, below the $2.10 a share offer from Thoma Bravo.
Having seen the stock fall from above $3 in August 2020 to below $1 in June, investors are likely to be relieved that Newman appears to have secured a credible bidder with deep pockets. Two reasons this is not a surprise
While Nearmap has certainly surprised the market by suddenly announcing a deal that has been cooking in the background for some time, the existence of such an offer won’t come as a total shock for two reasons.
Firstly, consolidation in the key mapping market of the United States has looked inevitable for some time. There are four key players in this market, with Eagleview the top dog and Nearmap next biggest; the pair have a complicated history, with Eagleview currently suing Nearmap for patent infringement.
These four companies have been essentially flying their own planes over the same parts of America, doing the same basic thing, for some time. As such, potential consolidation has long been a theme for the sector.
This has not been lost on Newman. According to sources, over the last 12 months he has been out and about in this market talking to potential parties, which led to the discussions with Thoma Bravo.
The firm, which has $US100 billion under management, is no stranger to the sector; when Eagleview was put up for sale seven years ago, Thoma Bravo was the underbidder.
According to the Nearmap camp, it sees the potential for supercharge Nearmap’s growth in the US, presumably using the game plan it previously developed for Eagleview.
Sources said Thoma Bravo has no concerns about the Eagleview legal case; US investors apparently have a much more benign view of such stoushes, which are much more common in the US and often seen as validation of the competitive threat one player poses to the other.
Thoma Bravo has also shown it has no problems looking through the current tech battering on listed markets to pay up for beaten-down companies.
Last Wednesday night it announced it would pay $US2.8 billion for a software company called Ping Identity, whose share plunged from $US30.25 in April to just $US16.48 in June; Thoma Bravo is paying $US28 a share for the group.
Nearmap has given Thoma Bravo a seven-day exclusivity period for due diligence, having already provided the firm with non-exclusive due diligence over the last six weeks. The tactic is slightly unusual, but appears designed to achieve two things: put the acid on Thoma Bravo to make its offer final and flush out any other potential bidders.
Sources suggested Newman has spoken with a number of parties during his market soundings; by announcing the bid on Monday, Nearmap looks to be trying to bring these bidders to the table while making it clear the price they will need to beat.
“If no binding offer is proposed [from Thoma Bravo] within the seven-day exclusivity, then the board, in our view, is likely to run a full sales process to flush out other potential offers and maximise a sale price,” RBC Capital Markets analyst Garry Sherriff said on Monday.
