Tyro joins the tech takeover wave

Tyro’s market capitalisation has plunged by $1.4 billion over the past year, but it remains a fast-growing company. It recorded a 24 per cent increase in transaction values processed for the 12 months to June 30, 2022, and a 57 per cent increase in August.

Also, the company has issued guidance for 2023 including forecast transaction value between $40 billion and $42 billion, normalised gross profit of $175 million to $181 million, and target operating leverage at 85 per cent.

Tyro is targeting being cash flow positive on exiting fiscal 2023. The guidance works out at an EBITDA of between $23 million and $29 million.

The company is well embedded in the small business community in Australia and will eventually show the benefits of scale that have made so many payments platforms attractive to investors.

It was especially hit hard by the COVID-19 pandemic because of the heavy concentration of hospitality businesses using its payment terminals.

Tyro is now in the same boat as Nearmap, which is the subject of a $1 billion bid from Thoma Bravo, and Infomedia, which has allowed due diligence on bids worth up to $657 million.

The consensus in the market is that Infomedia will get taken over and be delisted from the ASX.

Private equity has the advantage of being able to adopt longer-term thinking when it acquires assets, whereas listed equities are subject to the vagaries of the sharemarket.

Met through the night

Although, it is noteworthy that Cannon-Brookes has obviously got tired of watching Tyro go backwards under chairman David Thodey.

At least Thodey has done the right thing by Tyro shareholders in rejecting the initial offer from the Potentia-led consortium.

When Tyro Payments CEO Robbie Cook told Thodey in June he would work at 110 per cent until Christmas – when he leaves to become CEO at Star Entertainment – he did not envisage being hit with a takeover offer.

After the bid lobbed on Wednesday, Cooke and the Tyro board met through the night so they could get a response out first thing on Thursday morning.

As usual, the bidders have found metrics that make the bid look highly attractive, such as a 50 per cent premium to the 60-day value-weighted average price, 40 per cent to the 90-day VWAP, and 112 per cent to the 52-month low.

The target is emphasising that the proposal is “materially below Tyro’s fundamental value and highly opportunistic given the offer price is substantially below where Tyro’s share price has traded in the past 12 months”.

Also, the board has stressed the strong growth prospects, and that it is well capitalised to support its growth ambitions.

But the reality is the company has lost the support of major institutional investors over the past couple of years. The board and its advisers, Barrenjoey, ought to be trying to find a strategic global investor willing to pay $120 million more, which would meet Cannon-Brookes’ exit criteria.

The last thing Cannon-Brookes wants is for Potentia to walk away, no other bidder to turn up, and then be stuck in a stock that drags down the value of his Grok Ventures portfolio.

Read More