Is It Worth Betting On The Ideagen Takeover?

Ideagen (LON: IDEA) shares are fractionally above the current bid price that the company is looking to sell itself at. So, anyone buying now and holding until that offer goes through is guaranteeing themselves a loss. Not much of one, to be fair about it, given the size of the spread perhaps 3 p on a 350 pence price – so 1% or thereabouts – but none of us do trade in order to guarantee ourselves a loss.

On the other hand, given that this is true there must be some reason why the price is above that bid price. That reason being that there’s a surmise – a guess about a possibility – that another and higher bid will emerge. Given the level of information available to us out here that has to be quite a long way to the right of that spectrum from investment to beyond, perhaps, speculation.

Also Read: The Top Earnings Reports to Look Out For in the Coming Quarter

The background here is that Ideagen has received a bid from Hg – through the Rainforest Bidco – to take the company into private equity. That cash offer is at 350 pence a share, the current mid-price is 351.5 pence, the actual buying price is 353 pence at pixel time. So, buying now builds in that certain loss if the bid goes through.

However, we’ve two more pieces of information here. One is that there is another potential bidder having a look at the corporate books. As the announcement says: “The Board remains in discussions with Astorg, who have been granted access to due diligence. There can be no certainty that a firm offer will be made by Astorg, nor as to the terms of any such offer.” The only thing we do know is that if an offer is made it’s not going to be at lower than 350 pence. For the board is already recommending the Hg one at that price – only higher will win the corporate fair hand.

But that obviously depends upon the probability of there being that second bid at all. This might just have got higher. For the trading statement, is that current results are good. The Board expects revenue to be up 41% for the year just ended (to 30 April 2022) and adjusted EBITDA up 33%. Given the business model, it’s Annual Recurring Revenue that is really everyone’s target and that’s up now to 86% of total revenues.

More importantly, the current book of what will be this year’s ARR (well, will be barring extreme circumstances) looks to be up 48%. That is what makes Ideagen the takeover target in the first place.

At which point, well? The bet is that Astorg comes in with a higher offer. Maybe Hg then responds with one further. Or, the Hg one goes through as it is. The second result leads to a 1% (or so) loss baked in. The possible win from the first outcome is some positive number. But it all depends upon the probability of that higher offer arriving.

Any trading decision needs to be based upon some estimation of that probability.