Texas software investor ESW Holdings is offering more than twice the current market price to buy Kiwi e-commerce software seller SLI Systems for more than $40 million.
The US firm has already locked in acceptances for about 51 percent of the business, including the interests of co-founders Shaun and Grant Ryan, Pie Funds Management and Milford Funds Management. ESW will offer at least 63 cents a share and between 3 and 34 cents per option in a full takeover offer, the wide value spread reflecting “exercise price and expiry date”. The shares last traded at 30 cents, valuing SLI Systems at $18.7 million. They haven’t traded above 60 cents in more than two years.
“Based on feedback from shareholders, the board and executive team have been continually considering a range of strategic options for the company as it has steered its managed services business into profitability and invested in the development of a new product to return the company to growth mode,” chairman Greg Cross said.
“While we have made good progress on both fronts this offer allows shareholders to realise a significant premium to the current market and to eliminate the ongoing execution risks of this transition phase.”
ESW indicated an interest in buying SLI in July and was granted permission to carry out due diligence in August. SLI’s independent directors indicated they will probably recommend the deal to shareholders, the takeover notice said.
Chief executive Chris Brennan and chief financial officer Rod Garrett will be paid redundancy from SLI Systems’ cash reserves. Those reserves will also cover payments due to Brennan, Garrett and chief product officer Blair Cassidy under their employment retention agreements. The offer price will be increased if there’s more cash than expected at Oct. 31.
Christchurch-based SLI has formed a takeover sub-committee made up of Cross, Sarah Smith and Andy Lark. Northington Partners has been hired to independently value the offer.
The sub-committee urged shareholders to wait until they receive the target company statement before acting.
Austin, Texas-based ESW buys and grows software companies, targeting firms with an enterprise value of between US$10 million and US$250 million.
If successful, ESW plans to delist SLI. If it doesn’t reach the 90 percent threshold to enforce the remaining shareholders to sell, it may waive that condition and instead stack the board with its representatives.
Either way, ESW said it plans to invest in SLI’s global business by ensuring long-term viability, new product innovation and using its existing top-tier retail relationships to expand the business. The Texan firm will review the company’s capital structure and will replace the CEO and CFO.
SLI reported a maiden profit of $4 million in the June year just ended. In 2017, it changed strategy to focus on a self-service model where customers can more easily build their own capabilities as retailers facing the pinch refrain from deploying a number of different technologies at once.
Early investors Pioneer Capital and New Zealand Venture Investment Fund sold out of SLI earlier this year at 25 cents a share, ending a decade-long involvement in the firm. They injected $1 million into the start-up to help fund its global expansion plans and held 16 percent of SLI before its initial public offering in 2013. They were among shareholders who sold $12 million of stock into SLI’s 2013 initial public offering, which raised $27 million at $1.50 a share.