ASX small cap receives premium takeover offer

Volpara Health Technologies (ASX: VHT) shares rocketed 41% on last Thursday to $1.10 following a takeover offer from Lunit Inc for $1.15 per share.

Lunit, recognising the potential of Volpara and acknowledging its impressive results, has proposed a substantial premium. Back in August we covered Volpara’s positive market update where the company showed its quality with strong cash receipts and positive operating cash flow. The offer aligns with a series of TAMIM Takeovers this year, leveraging opportunities within the ASX small-cap space. 

What is Volpara Health Technologies?

Volpara is a MedTech Software-as-a-Service company with its purpose to save families from cancer.

It is a provider of breast imaging analytics and analysis products that improve clinical decision-making and the early detection of breast cancer. Volpara uses AI-powered image analysis which allows radiologists to quantify breast tissue with precision and helps technologists produce mammograms with optimal image quality, positioning, compression, and dose. Volpara’s software is used in over 2,000 facilities by more than 5,600 technologists, impacting nearly 15 million patients globally. It helps providers conduct more than three million cancer risk assessments each year and can be deployed stand-alone or fully integrated with electronic health record systems, mammography reporting systems, imaging hardware, and genetic laboratories.

Within the last month Volpara released strong half year financial results.

The company experienced a notable 17.5% increase in revenue from customers, reaching NZ$19.8 million. This growth was primarily driven by a substantial uptick in Core subscription revenue, which grew by 26.5% to $14.9 million. Volapara continued its positive cash flow crusade, recording its second consecutive free cash flow positive half-year, underscoring its financial sustainability and operational efficiency.

Time will tell as to whether this is the last of the financial results we’ll see from Volpara as a listed ASX company.

What is the offer?

As mentioned above under the proposal Volpara shareholders will receive a cash price of A$1.15 per share.

The offer is at a substantial 47.4% premium to the company's last closing share price of A$0.78 per share on December 13, 2023. Furthermore, this offer reflects an even more significant premium, standing at 55.4% and 59.7% to Volpara's one-month and three-month volume weighted average prices (VWAP) up to December 13, 2023, amounting to A$0.74 and A$0.72 per share, respectively. The proposal implies an equity value of A$295.7 million and an enterprise value of A$285.5 million. Additionally, with an enterprise value to FY24 revenue multiple of 7.5.

Chairman Paul Reid emphasised the Board's unanimous support for the transaction:

“Volpara’s Board has assessed the proposed Scheme as providing compelling, risk-adjusted value and certainty for shareholders and unanimously support the proposed transaction.

“In considering options for Volpara, including continuing to implement the Company’s growth strategy as a publicly listed company, the Board adopted a long-term view of the risks and rewards of various alternatives. The proposed transaction would accelerate the return of capital to shareholders and mitigate the risks that would otherwise be involved in delivering the opportunities from executing Volpara’s strategic plan over time.”

While the deal is on the table and appears to have the support of major shareholders it’s not a foregone conclusion. The deal still requires shareholder approval as well as court and New Zealand Overseas Investment Office approval. Following the market close on Thursday the share price remains below the current offer. While confident, investors appear to be pricing in a chance that there is still a bit to play out.

TAMIM: Special Situations Specialists

The Volpara offer follows on from a number of TAMIM holdings that have been caught up in takeover offers.

Aussie broadband (ASX: ABB) confirmed its acquisition of Symbio with GQG Partners LLC (ASX: GQG) making a bid for Pacific Current Group Limited (ASX: PAC) before falling through. Cirrus Networks Holdings Limited (ASX: CNW) accepted a premium offer from Atturra Limited (ASX: ATA) while Healthia (ASX: HLA) rocketed higher following a bid from private equity company Pacific Equity Partners and has since left the ASX.

So what makes for a takeover opportunity? Over the last few months we’ve written about why specific businesses become targets as well as the common traits behind these takeovers.

The TAMIM Takeaway

The Volpara offer signifies further development in the small-cap space on the ASX.

Volapara shareholders will now have to wait to vote on the proposed offer with the expected timeframe early in Q2 of 2024. Should all conditions be satisfied it is expected that the scheme will be implemented in that same quarter. Impatient shareholders may wish to take the current market offer of $1.10 and run. While cash in hand is great, shareholders may risk missing out on any future offers and the current discrepancy between the offer and market price.

We continue to see enormous opportunity for takeovers and, in our view, it is the cheapest the space has been since post the Global Financial Crisis.

Disc: ASX: VHT, ASX: ABB, ASX: PAC, ASX: CNW, ASX: HLA, ASX: ATA, are currently held in TAMIM Portfolios.