Good timing - just before the Chair presents.
San Francisco-based private equity giant Thoma Bravo may have to map out its future a little more, with its play for Nearmap looking less like a done deal.With no substantial shareholders on the register of the Aussie aerial imaging technology company, you would think the suitor would have an easy time getting its $2.10 per share, $1.1 billion bid approved.
But, there is a growing group of long-term investors planning to vote against the scheme, despite its backing from the Nearmap board. At least three institutional investors spoken to by Street Talk plan to vote no at the shareholder meeting in November, including Sterling Equity.“For us, this is an easy no at $2.10,” director Nicolas West said.“I think $2.10 is a great price for the buyer, but not for shareholders... it’s a fantastic company and this is a very cheap price.“In our view, $2.10 barely covers the Australian operations, with little being offered for Nearmap’s rapidly growing North America business, which is now the largest source of revenue.”
Sterling’s views were echoed by another fund manager who did not want to be named, who said the price was “way too low compared to Nearmap’s prospects”.“There are not many Aussie tech companies that clearly have superior technology and are taking market share in the US. It would be a shame to see it fall into foreign hands,” the investor said. The prospects of the business, versus the price on offer, is the sticking point for this group of investors, who believe Thoma Bravo stands to gain substantially.They point to the uniqueness of its technology – which offers everything from two-dimensional photo maps to oblique, panoramic, three-dimensional images that are regularly updated, as well as automatically generated insights – the potential for future UK and European expansion and its rapidly growing US business as reasons for why the business should be valued more highly.
These views were supported by a recent CCZ Equities report from analyst Ed Woodgate, who wrote in a note that his sum-of-the-parts valuation gave Nearmap a value of $3.75 per share, with $2.48 of this attributed to its Australian and North America operations.“The UK and Europe is worth at least 59¢, reflecting the likelihood of material earnings accretion, lower investment versus the North American expansion, and execution risk... We apply a 25 per cent premium to reflect the optionality and bargaining power of Nearmap’s unique data.”
Issues that have weighed on the company’s share price – which has gone from more than $4 in mid-2019 to less than $1 earlier this year – include an ongoing court case with rival Eagleview over alleged patent infringement regarding its roof estimation software and a $95 million capital raising in September 2020 to fund its US expansion, in which director Ross Norgard sold some shares.“We have heard that it is not uncommon for some American companies to engage in vexatious litigation to disrupt competitors,” Woodgate said in his note.“We expect worse case, tail scenario is that NEA pays damages of $US10 million.”
While none of the investors spoken to by Street Talk were confident they’d have the numbers to block Thoma Bravo, they all believed they would come close.“It’s 75 per cent of shareholders voting, so if only 50 per cent of shareholders turn out, I think there is enough to knock it back,” one investor said.
