Mike Cannon-Brookes, Potentia Capital in Tyro Payments takeover play

Mike Cannon-Brookes owns 12.5 per cent of Tyro. Picture: Toby Zerna

He’s done it again. Mike Cannon-Brookes has dusted off the M&A cap and put listed payments business Tyro into play. The activist has 12.5 per cent of Tyro through his Grok Ventures.

On Thursday Potentia Capital pounced on Tyro in a move Tyro chair David Thodey and his board must have seen coming – from somewhere – for months.

On Wednesday night Thodey received the call from Potentia managing director Tim Reed, also President of the Business Council of Australia, who last week was at the PM’s Jobs and Skills Summit. They know each other well.

Potentia is teaming up with HarbourVest Partners, MLC and Cbus, in what is now a familiar private equity/industry fund story, to bid $1.27 a share for Tyro, valuing it at $658m.

This time last year Tyro was trading at over $2bn.

By 9.36am on Thursday the board rejected the bid, a speed which hints at a prepared defence close to hand.

Tyro shares are down 75 per cent this year and they are more than 60 per cent down on the IPO issue price almost three years ago.

The full-year results show Tyro bouncing back after Covid shutdowns hit the first half. But it has been hammered by the tech correction, and within that, payments have fared very badly.

The company is sweating on key man risk.

Straight-shooting CEO Robbie Cooke, who has driven the growth of the business, was poached in June and is expected at Star Entertainment before the end of the year.

Under threat of takeover, the top job at Tyro may not have been easy to fill, but assuming the board offers the right insurance, an announcement on Cooke’s replacement may come sooner than later as part of the defence.

And what to make of Mike Cannon-Brookes, who first bought into Tyro ahead of listing in 2015? Potentia has stated he is a locked-in seller at $1.25 a share – barring a counterbid at least 25c higher from elsewhere.

Potentia is offering shareholders either all cash or all Potentia scrip or a 50/50 mix as payment.

It is understood that Cannon-Brookes favours 50/50. This gives him not only continued upside to Tyro, but exposure to Potentia’s future facing portfolio of tech businesses.

It also gives him around $40m in cash. Even billionaires have liquidity issues from time to time. It is clear however, that other shareholders want to hold out for a bid with at least a 2 in front of it. Even without that, $1.25 a share is not going to fly.

The Tyro camp see the company as undervalued on its fundamentals. Momentum is back and its small business customers have real attraction for those in payments, from major US firms to the big Australian banks.

Moreover. Camp Tyro point out that Cannon-Brookes made sure his agreement falls away with a counterbid over 25c higher. This, they say, is telling.

In August, Tyro reported a 34 per cent annual increase in transaction value. Tyro was debt-free as of June 30 and has $122.8m cash.

Despite a barrage of competition in payments, Tyro has grown market share at seven times system growth. In the $700bn card-present and e-commerce card-not-present sector, it has a 5 per cent share and a 19 per cent share of SMEs in health, hospitality and retail. That signals potential for growth and a firm hold on SMEs.

And management has given specific guidance that it will be cash flow-positive by the end of the 2023 financial year.

Camp Potentia has a different pitch for shareholders. Why accept guidance from a CEO who is half out the door? It’s a fair point, despite Cooke still holding about two million shares.

Potentia argues that the results are already baked in to the share price. Tyro began as a great disrupter in point of sale technology but has since lost its way. Its mistake was to seek a banking licence and spend too much time and resources on banking, and Tyro has had trouble keeping its skilled tech workers.

Tim Reed brings a wealth of tech experience, having run MYOB. Potentia’s Andrew Joyce, who would join Tyro’s board, is also a tech founder.

Potentia was founded by Andrew Gray, who at Archer Capital led the successful buyout of MYOB with Tim Reed, then CEO. Now at Potentia, Reed and Gray have been accumulating hi-tech businesses for two years.

Were Potentia to win, Tyro could well de-bank to focus solely on payments disruption – a strategy tech guru Mike Cannon-Brookes could well favour.

Tyro sought out a banking licence well before Robbie Cooke’s time because it needed a special purpose merchant licence to keep direct access to the system. But banking is a small part of the mix and strategically a licence is no longer required.

The Potentia bid could shake out big North American strategic bidders like PayPal, Adyen, Nuvei, Square and Global Payments. But everyone’s currency has been damaged through the tech slump.

Tyro shares closed up 27.9 per cent on the day, 1c under the bid price at $1.26.