Australia's Potentia contests Nitro merger plan

Potentia, which first moved for Nitro last August and has accumulated a 19.8% interest in the company, believes the board is effectively trying to push through a deal with Alludo, a Canadian software provider owned by KKR, without giving due consideration to competing proposals.

The private equity firm submitted a complaint to the panel earlier this month, calling for the Alludo process to be terminated – various aspects of the deal were questioned – or at least for it to be granted proper due diligence access. Alludo countered with criticism of Potentia’s proposal. Ultimately, the panel declined to act. Potentia called for a review of the decision this week.

The situation is reminiscent of BGH Capital’s pursuit of fertility care business Virtus Health last year. The company agreed to a competing offer from CapVest Partners and BGH called on the panel to intervene twice, once successfully and once unsuccessfully. BGH’s 19.99% stake in Virtus enabled it to block certain rival proposals, and it won the deal after CapVest lost patience and walked away.

Potentia’s initial bid for Nitro, submitted in partnership with HarbourVest Partners, was for AUD 1.58 per share and the company rejected it. Two months later, the private equity firm announced it would make an unsolicited off-market takeover bid of AUD 1.80 per share. This was also rejected. At the same time, Alludo arrived on the scene with an offer of AUD 2.00 per share.

Potentia returned in November, asking to engage with Nitro over a revised bid offer that would match or exceed the Alludo proposal. This was rebuffed as the Nitro board recommended that shareholders vote in favour of Alludo’s scheme of arrangement. Potentia then submitted an offer of AUD 2.00 per share and Alludo responded by upping its bid to AUD 2.15 per share.

This price bump was conditional on Nitro confirming that it would not grant due diligence access to Potentia, and it was accompanied by a structural tweak: a choice between a 100% sale through a scheme of arrangement or an off-market takeover that would give Alludo at least 50.1%. The latter would allow the acquisition to proceed even if Potentia, with its 19.8% holding, resisted.

The private equity firm, in turn, came back with a revised offer of its own: an all-cash offer of AUD 2.00 per share; an all-scrip sale comprising 70% equity in the acquisition vehicle and 30% preference shares that could be redeemed against the acquisition vehicle; or a cash-and-scrip sale with an even split between the two. It was once again rebuffed.

Nitro claims to be one of only two software companies globally with a proven enterprise-grade software-as-a-service (SaaS) PDF productivity and e-signing platform. It has more than 2.8m licensed users and over 13,000 business customers in 155 countries. Customers include two-thirds of the Fortune 500.

Revenue reached USD 50.9m in 2021, up from USD 21.2m a year earlier, while the subscription share of overall revenue increased from 53% to 66%. EBITDA remained negative, widening from USD 6m to USD 18.6m, while a net loss increased from USD 7.5m to USD 21.7m. Annual recurring revenue rose from USD 28.5m to USD 40.1m, with a gross margin of 92%.

The company’s stock has gained more than 90% since Potentia first expressed interest in the asset. It closed on January 25 at AUD 2.17, which translates into a market capitalisation of around AUD 532m.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Australasia
• Technology
• Buyouts
• Regulation
• Australia
• Potentia Capital
• enterprise software