Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

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The takeovers of Aussie tech companies continue. 
On the 7 June, <a href="https://www.smartkarma.com/entities/altium-ltd" target="_blank" data-smartkarma-citation="entities:18626:1" rel="noopener">Altium Ltd (ALU AU)</a>, a global software company, <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02382370-2A1302312?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">confirmed and subsequently rejected</a> a non-binding proposal from <a href="https://www.smartkarma.com/entities/autodesk-inc" target="_blank" data-smartkarma-citation="entities:13211:1" rel="noopener">Autodesk Inc (ADSK US)</a> - discussed in <a href="https://skr.ma/we6mt" target="_blank" rel="noopener">Altium Ltd (ALU) Rebuffs Autodesk Offer</a>. This was followed on the same day by  <a href="https://www.smartkarma.com/entities/hansen-technologies-ltd" target="_blank" data-smartkarma-citation="entities:12633:1" rel="noopener">Hansen Technologies (HSN AU)</a>, a provider of software and services globally, <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02382235-3A568452?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">announcing</a> Australian PE outfit BGH Capital had made a non-binding conditional proposal - see <a href="https://skr.ma/pAK5Y" target="_blank" rel="noopener">Hansen Technologies (HSN AU)'s Assured Deal With BGH</a>.
Now <a href="https://www.smartkarma.com/entities/rhipe-ltd" target="_blank" data-smartkarma-citation="entities:19128:1" rel="noopener">rhipe Ltd (RHP AU)</a>, a provider of cloud-based subscription software-as-a-service licenses,  has <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02390415-3A569823?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">announced</a> a non-binding indicative proposal from Norway's Crayon Group Holdings. 
The proposal is conditional on rhipe having a net cash position of A$31mn at the close of the Offer.
A final binding Offer is conditional on due diligence, the unanimous recommendation from rhipe's board, and no MACs.
rhipe has provided Crayon with limited confirmatory due diligence on a  non-exclusive basis.
The Offer price appears opportunistic and is currently trading through terms. 
 More below the fold. 
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The takeovers of Aussie tech companies continue. 
On the 7 June, Altium Ltd (ALU AU), a global software company, confirmed and subsequently rejected a non-binding proposal from Autodesk Inc (ADSK US) - discussed in Altium Ltd (ALU) Rebuffs Autodesk Offer. This was followed on the same day by  Hansen Technologies (HSN AU), a provider of software and services globally, announcing Australian PE outfit BGH Capital had made a non-binding conditional proposal - see Hansen Technologies (HSN AU)'s Assured Deal With BGH.
Now rhipe Ltd (RHP AU), a provider of cloud-based subscription software-as-a-service licenses,  has announced a non-binding indicative proposal from Norway's Crayon Group Holdings. 
The proposal is conditional on rhipe having a net cash position of A$31mn at the close of the Offer.
A final binding Offer is conditional on due diligence, the unanimous recommendation from rhipe's board, and no MACs.
rhipe has provided Crayon with limited confirmatory due diligence on a  non-exclusive basis.
The Offer price appears opportunistic and is currently trading through terms. 
 More below the fold. 





Rhipe (RHP AU): Crayon Sees Silver in Them Thar Clouds

TMT & Consumer Independent Equity Research Analyst, Obex Capital Research

Aaron Gabin

TMT & Consumer Independent Equity Research Analyst

TMT & Consumer Independent Equity Research

Obex Capital Research

“Obex” is Latin for Barriers to Entry. Obex Capital Management’s investment philosophy is driven by an intense focus on which business model’s Barriers to Entry are able to withstand the ever increasing competitive disruption in the TMT and Consumer Sectors.

Equity Bottom-Up

This case study evaluates <a href="https://www.smartkarma.com/entities/nutanix-inc" target="_blank" data-smartkarma-citation="entities:26440:1" rel="noopener">Nutanix Inc (NTNX US)</a>'s  business fundamentals, unit economics, valuation, investors, management and culture. 
A 2016 IPO, Nutanix is a provider of Hyper Converged Infrastructure (HCI) Software. After an incredibly volatile three years where Nutanix went through two business model transitions and a sales pipeline rebuild, Nutanix may be poised for a strong multi-quarter run as it has seemingly stabilized its sales issues, stopped losing market share, and will be coming up against a very weak set of comps. At 4x EV/S, the market is not valuing Nutanix as the accelerating post-trough SaaS transition software company this is. The key upside risk is a takeout by a larger hybrid cloud provider, while key downside risks include an inability to generate operating leverage due to a heightened competitive environment, along with a dilutive capital raise, due to its accelerating FCF burn.
Base Case PT: $55                               Upside PT: $65                                    Bear Case PT: $25

This case study evaluates Nutanix Inc (NTNX US)'s  business fundamentals, unit economics, valuation, investors, management and culture. 
A 2016 IPO, Nutanix is a provider of Hyper Converged Infrastructure (HCI) Software. After an incredibly volatile three years where Nutanix went through two business model transitions and a sales pipeline rebuild, Nutanix may be poised for a strong multi-quarter run as it has seemingly stabilized its sales issues, stopped losing market share, and will be coming up against a very weak set of comps. At 4x EV/S, the market is not valuing Nutanix as the accelerating post-trough SaaS transition software company this is. The key upside risk is a takeout by a larger hybrid cloud provider, while key downside risks include an inability to generate operating leverage due to a heightened competitive environment, along with a dilutive capital raise, due to its accelerating FCF burn.
Base Case PT: $55                               Upside PT: $65                                    Bear Case PT: $25

Nutanix Buy This SaaS Transition at a Discount I (Fundamentals)

Insight Provider, CrossASEAN Research

Nicolas Van Broekhoven

Insight Provider

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

<a href="https://www.smartkarma.com/entities/procurri-corporation-limited" target="_blank" rel="noopener" data-smartkarma-citation="entities:24110:1">Procurri Corporation (PROC SP)</a> released its 3Q results on 4/11 after the close of Singapore trading hours. Subsequently, management halted the shares right at 9 am on 5/11 as it received an unsolicited bid for some (or all) of its assets. Recall, earlier this year there were multiple bidders circling Procurri before Private Equity group Novo Tellus cemented its control by buying 29.6% of its shares from parent DeClout. During this afternoon's briefing management could not comment on the latest bid except saying: "Procurri is a valuable franchise in an active industry".While it is unclear who the bidder is, or what part of the business they are targeting, this is the second time in the past year that potential bidders are circling Procurri. The continued interest of PE (or industrial players) in Procurri continues to highlight the undervaluation of the company. While the share price has run by approximately 40% YTD it continues to trade at a 55% discount to two transactions completed over the summer (see previous insight for details).3Q19 results showed stagnating revenues but increasing margins. Overall Procurri achieved 66% of our FY19 revenue forecast after the first three quarters of the year. The company will need a blowout fourth quarter to achieve our 23M FY19 EBITDA forecast. Management continues to expect important ITAD deals to close at any time now which could materially boost revenue and profit growth. Another angle of growth might be a JV with a large US player to enter the ITAD space in a more significant way.<div>We still think Procurri remains dramatically undervalued (Fair Value 0.64 SGD) and should at least rise another 70%  from its current 0.38 SGD share price by the end of FY20. In order for this to materialize the company doesn't only need to show margin expansion but also significant revenue growth.</div><div><div>If public market investors continue to fail and re-rate Procurri a privatization of the group is a logical outcome given its growth trajectory and M&amp;A activity in the space. </div></div>

Procurri Corporation (PROC SP) released its 3Q results on 4/11 after the close of Singapore trading hours. Subsequently, management halted the shares right at 9 am on 5/11 as it received an unsolicited bid for some (or all) of its assets. Recall, earlier this year there were multiple bidders circling Procurri before Private Equity group Novo Tellus cemented its control by buying 29.6% of its shares from parent DeClout. During this afternoon's briefing management could not comment on the latest bid except saying: "Procurri is a valuable franchise in an active industry".While it is unclear who the bidder is, or what part of the business they are targeting, this is the second time in the past year that potential bidders are circling Procurri. The continued interest of PE (or industrial players) in Procurri continues to highlight the undervaluation of the company. While the share price has run by approximately 40% YTD it continues to trade at a 55% discount to two transactions completed over the summer (see previous insight for details).3Q19 results showed stagnating revenues but increasing margins. Overall Procurri achieved 66% of our FY19 revenue forecast after the first three quarters of the year. The company will need a blowout fourth quarter to achieve our 23M FY19 EBITDA forecast. Management continues to expect important ITAD deals to close at any time now which could materially boost revenue and profit growth. Another angle of growth might be a JV with a large US player to enter the ITAD space in a more significant way.We still think Procurri remains dramatically undervalued (Fair Value 0.64 SGD) and should at least rise another 70%  from its current 0.38 SGD share price by the end of FY20. In order for this to materialize the company doesn't only need to show margin expansion but also significant revenue growth.If public market investors continue to fail and re-rate Procurri a privatization of the group is a logical outcome given its growth trajectory and M&amp;A activity in the space. 

Procurri (PROC SP): Unsolicited Bid for Assets Highlights Continued Undervaluation

<a href="https://www.smartkarma.com/entities/procurri-corporation-limited" target="_blank" data-smartkarma-citation="entities:24110:1" rel="noopener">Procurri Corporation (PROC SP)</a> reported 1H19 results which showed a mixed picture. While revenues were down slightly, gross margins were up significantly (+210bps) and the bottom line improved 37% YoY as its tax rate normalized. Management pointed to the 2Q18 one-off ITAD deal which skewed last year's results. Excluding this deal, the company did show good growth YoY. During 1H19 Procurri achieved 43% of our FY19 revenue forecast while it achieved 47% of our FY19 EBITDA forecast.1H19 results are unlikely to lead to the much-awaited re-rating of Procurri but during the analyst briefing, it became clear that management expects more IT Asset Disposition (ITAD) deals to follow in 2H19. Given these deals can be lumpy they could materially benefit the top/bottom-line going forward. Procurri remains very cheap trading at 3.8x FY19 EV/EBITDA. Since February the company has an engaged new shareholder, Novo Tellus, who will guide the company and help them unlock value.Recent M&amp;A in the sector suggests two direct competitors were both sold for 13x EBITDA. If the same multiple was applied to Procurri its fair value would be 0.92 SGD or 187% higher versus its market price.We still think Procurri remains dramatically undervalued and should at least double from its current 0.32 SGD share price by the end of FY20 as it delivers better financials and investors take note.<div class="content-highlight">If public market investors continue to fail and re-rate Procurri shares accordingly the privatization of the group is a logical outcome given its growth trajectory and M&amp;A activity in the space. Taking into account the recently changed rules on the SGX minority investors should now expect a bid to be both fair and reasonable. Any imminent privatization attempt will, therefore, be dead on arrival below minimum 0.50 SGD per share (based on 6x FY19 estimated EBITDA of 23.6M SGD) as Procurri surely has 10% of its shareholders who understand its true underlying value and would reject any low-ball offer.</div>

Procurri Corporation (PROC SP) reported 1H19 results which showed a mixed picture. While revenues were down slightly, gross margins were up significantly (+210bps) and the bottom line improved 37% YoY as its tax rate normalized. Management pointed to the 2Q18 one-off ITAD deal which skewed last year's results. Excluding this deal, the company did show good growth YoY. During 1H19 Procurri achieved 43% of our FY19 revenue forecast while it achieved 47% of our FY19 EBITDA forecast.1H19 results are unlikely to lead to the much-awaited re-rating of Procurri but during the analyst briefing, it became clear that management expects more IT Asset Disposition (ITAD) deals to follow in 2H19. Given these deals can be lumpy they could materially benefit the top/bottom-line going forward. Procurri remains very cheap trading at 3.8x FY19 EV/EBITDA. Since February the company has an engaged new shareholder, Novo Tellus, who will guide the company and help them unlock value.Recent M&amp;A in the sector suggests two direct competitors were both sold for 13x EBITDA. If the same multiple was applied to Procurri its fair value would be 0.92 SGD or 187% higher versus its market price.We still think Procurri remains dramatically undervalued and should at least double from its current 0.32 SGD share price by the end of FY20 as it delivers better financials and investors take note.If public market investors continue to fail and re-rate Procurri shares accordingly the privatization of the group is a logical outcome given its growth trajectory and M&amp;A activity in the space. Taking into account the recently changed rules on the SGX minority investors should now expect a bid to be both fair and reasonable. Any imminent privatization attempt will, therefore, be dead on arrival below minimum 0.50 SGD per share (based on 6x FY19 estimated EBITDA of 23.6M SGD) as Procurri surely has 10% of its shareholders who understand its true underlying value and would reject any low-ball offer.

Procurri: Still at 3.8x EBITDA; While Two Competitors Sold at 13x EBITDA in July = Wake Up Mr.Market

United States

Arrow Electronics, Inc. distributes electronic components and computer products to industrial and commercial customers.  The Company distributes a variety of products including computer systems, peripherals, software, and mass storage products to original equipment manufacturers and commercial customers worldwide.

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Arrow Electronics (ARW US)

Rhipe (RHP AU): Crayon Sees Silver in Them Thar Clouds

The granting of DD indicates Rhipe is open to a firm offer, yet the non-exclusive nature of that DD suggests other suitors are welcome. I'd be...

David Blennerhassett

Nutanix Buy This SaaS Transition at a Discount I (Fundamentals)

This case study evaluates Nutanix Inc (NTNX US)'s business fundamentals, unit economics, valuation, investors, management and culture. A 2016...

Aaron Gabin

Procurri (PROC SP): Unsolicited Bid for Assets Highlights Continued Undervaluation

Procurri Corporation (PROC SP) released its 3Q results on 4/11 after the close of Singapore trading hours. Subsequently, management halted the...

Nicolas Van Broekhoven

Procurri: Still at 3.8x EBITDA; While Two Competitors Sold at 13x EBITDA in July = Wake Up Mr.Market

Procurri Corporation (PROC SP) reported 1H19 results which showed a mixed picture. While revenues were down slightly, gross margins were up...

Nicolas Van Broekhoven

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