‘‘Tell them they’re dreaming’: experts on Potentia’s Tyro bid

Atlassian co-founder Mike Cannon-Brookes is thought to have aspirations to keep his foot on Tyro Payments and make a windfall from a sale in the long run as Potentia Capital and its backers lobbed a $658m takeover bid.

But Tyro’s board swiftly shot down the bid for the company that listed more than two years ago for $1.36bn.

One market expert suggests that an offer of $2 per share would be needed to gain an acceptance from the board, valuing the business at more than $1bn excluding debt.

Another says that what the bid from Potentia does do is put the company in play in the hope that a global trade buyer comes forward with a higher offer.

Mr Brookes has struck a deal where he will sell Potentia his stake of 12.5 per cent into the company, to be paid in either cash or shares, but if another offer emerges over $1.52 per share, he can support that higher offer.

Sources say he wants to take the scrip.

This suggests that any competing rival needs to offer at least that amount for Tyro to get a deal across the line, and another bidder may already be running the ruler over the business that is in a position to pay up.

Global merchant businesses like Toast may have an interest in Tyro.

But companies have had an opportunity to buy the business for some time, given the poor performance of its share price.

Tyro sold shares at $2.75 each when it listed in 2019, but it has not kept up on the technology front, with its payment machines competing with more sophisticated payment options provided from rivals like Square, placing its business model is under threat.

There are some that believe for that reason the $1.27 per share price on offer from Potentia is fair, and others say a bump to about $1.40 per share could get a deal across the line, but Morgan Stanley analysts say based on other deals in the market, the right multiple is 6.8 times gross profit, which puts the appropriate offer at between $2 to $2.50 per share.

There could be some other shareholders keen to remain an owner of the company in private hands and would roll their stake into the offer, which is probably why Potentia put forward an offer in a takeover structure.

A purchase makes sense for the private equity firm Potentia, which counts former MYOB boss Tim Reed and former Archer Capital executive Andrew Gray within its top ranks.

Potentia owns Linkly, which operates adjacent to Tyro in the payment solution space and its team has the expertise to turn the company around.

But some believe that the hurdles for Potentia buying the business are high, given that Tyro owns a banking licence.

This means that Potentia would need approval from the Australian Prudential Regulation Authority to buy Tyro, and APRA typically takes a dim view on banks being owned by private equity firms, given that it favours operations with a greater distribution of capital to protect customers should the bank fail.

Yet Potentia’s plan is likely to be that it will shut the bank down, given that it has been a drag on Tyro’s capital and the banking space is highly competitive.

Potentia’s co-investors include HarbourVest Partners, MLC Investment and The Construction and Building Unions Superannuation Fund (CBUS) and their offer for Tyro is advised by Jarden.

The Australian-based Potentia also put forward a $386m offer for Nitro Software last week that got swiftly rebuffed, and it tried a similar tactic where as part of its $1.58 per share offer it gained a 17 per cent stake with help from the same backer HarbourVest and adviser Jarden.

That offer for Nitro that provides PDF software was called “highly opportunistic” by the company, which is advised by UBS and doubts remain as to whether it is fully funded.

The offer was an 18 per cent discount to its 12 month volume weighted average price of $1.93 per share and shares were trading at around $1.13 around the time of the Nitro offer.

Potentia’s takeover bid gives Tyro shareholders the option to receive their consideration in the form of all cash or half cash and half scrip or all scrip, subject to six weeks due diligence.

Tyro is working with Barrenjoey and law firm Clayton Utz.

Potentia’s argument is that the offer is 29 per cent higher than Tyro’s 30-day volume weighted average share price of 99c and shares closed on Tuesday at 98.5c.