It may not have had the sex appeal of the big BNPL acquisition that rocked the ASX yesterday but M&A activity is thriving in the digital space albeit IT services provider Cirrus Networks (ASX: CNW) was insulted by the takeover offer received from telecommunications provider Webcentral (ASX: WCG).
Unanimously recommending their shareholders reject the offer from Webcentral, the Cirrus Board of Directors labelled the unsolicited offer as “inadequate”. Specifically, the Board instructed its shareholders not to take action in response to the offer where it would otherwise be common for shareholders to sell on-market to receive funds immediately.
“Webcentral is seeking to gain control of Cirrus without paying an adequate control premium and is offering a derisory premium of only 3.2% to the last closing price of Cirrus shares of $0.031 and a premium of 11.77% and 9.93% to the one month and three-month Volume Weighted Average Price (VWAP) of Cirrus Shares, being $0.0286 and $0.0291 respectively, up to the trading day prior to the announcement of the Offer,” the Board said in a statement.
“The premium implied for your shares by the Offer Price is materially below the average premiums paid in Australian corporate control transactions.”
Making things a tad more difficult for Cirrus was the confirmation that Webcentral had acquired 8.86% of Cirrus via on-market purchases and had appointed FinClear as their broker to target an even greater stake.
The Offer Price of $0.032 for the remaining shares not already owned by Webcentral would value Cirrus at $29.7 million.
Unlike other companies around that market cap, Cirrus operates a largely successful managed services business that has been rapidly growing over the past three years.
In their trading update last month, unaudited accounts flagged an 11.7% increase in revenue for FY21 to $106m which would deliver EBITDA around $2m. The Company also had $7.7m in cash and is free of debt.
At an operational level, higher margin service contracts, new products and national expansion beyond their Perth base were the key drivers of this growth where working-from-home trends increased demand for corporate IT services.
In response to the Cirrus Board’s directive, investors sensing tension in the air have been quick to acquire Cirrus shares themselves, pushing CNW 16.6% higher to last close at $0.035, instantly increasing the Company’s market cap to $32.5m.
On the other side of the ledger, WCG shares fell 5% to close at $0.475.
While the unsolicited offer is new ground for Cirrus, Webcentral are no strangers to growth by M&A, having last month confirmed their merger with 5G Networks (ASX: 5GN) via a Scheme that will give 5G Networks shareholders 52% ownership of the combined entity.
Adding the $100m market cap of 5G Networks, the merger will deliver a new Company that provides telecommunications services to more than 330,000 customers, Government, enterprise, wholesale and small/medium businesses. Together they will also combine for $110m in revenue at 20% EBITDA margins with 12 offices nationwide offering domains, cloud services, data centres, networking, managed services, digital marketing and hardware.
Significantly less detail was disclosed publicly by Webcentral about their acquisition offer which was submitted to Cirrus without any prior engagement with Cirrus’ Board. For this reason, the Company statement suggested, “Webcentral may not have the interests of all Cirrus’ shareholders in mind.”
Webcentral’s Offer must remain open for at least one month which is expected to be until 16 September 2021. In the event that brokers representing Webcentral continue to acquire more shares, ASX regulations require they release a ‘Change in Substantial Holding Notice’ form with the ASX, enabling Cirrus shareholders to track the status of a potential hostile takeover.
Alfred Chan is a Business Reporter at The Sentiment specialising in ASX-listed small cap companies, a bloodstock enthusiast and former equities analyst.
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