Dear chairman: ReadyTech is in play

In April, we published our thoughts on Readytech Ltd (ASX:RDY), a vertical market software company that we viewed as significantly undervalued and a likely takeover target.

On 1^st June, RDY announced they had received a non-binding offer of up to $2/share (a +53% premium to the last traded price) from a European company called TSS, part of the Constellation Software Group of companies.

Since then, we’ve bought more shares on-market and been in dialogue with the RDY board. Given the significance of this event we thought an update was warranted, and we are publicly sharing our Open Letter to the Board of Readytech Ltd.

We believed strongly that RDY is significantly undervalued and it’s now become clear that a large strategic acquirer agrees. While the offer was rejected by the board and large shareholders, the starting gun has been fired, and RDY is effectively in play. The structure and manner in which TSS went about the offer is also relevant, as it highlights that an aggressive acquirer could find a path to control of RDY, even without the board and largest shareholder’s support.

Our Letter to the Board is provided at the end of this article and attached above.

The TSS Offer

At HD, we’ve wondered for some time when ASX-listed software M&A would really kick off. RDY may be one of the first.

In early June, the AFR reported that European vertical software operator TSS had lobbed a bid for RDY, structured as $2/share via a scheme or $1.75/share via a takeover bid. RDY then disclosed to the ASX that the board had rejected the offer on the basis the bid materially undervalued the company.

TSS is a subsidiary of Topicus - a large, well-funded and global operator with well over €1b revenue and a market cap of €8b. Topicus is part of the Constellation Software Group of companies.

Constellation’s model is well known. They are considered amongst the best software investors in the world, having achieved incredible success and phenomenal returns for shareholders through long-term execution of a disciplined strategy in acquiring vertical market software businesses.

The first thing to note is that a bid of $2/share from TSS clearly validates how undervalued RDY has been trading. The offer represents a >60% premium to the price when we published our first article, and still a +38% premium to the price today.

With that said, it is no surprise the board (and by implication the largest shareholder, Pemba) have rejected it.

We are in full agreement that the offer is well below the price that gets a deal done, but we also respect TSS for having made a play and being savvy enough to go direct to shareholders, rather than just the board. They are clearly serious about owning RDY with price the key variable.

The structure of their offer is worth noting. By proposing both a scheme and a takeover, the latter of which with a 50.1% acceptance condition, they are effectively highlighting their ability to go around both the board and Pemba to gain control and a willingness to own <100%.

RDY’s two largest shareholders (Pemba and Microequities) combined hold c.46% of RDY, meaning TSS could theoretically gain control even without their support.

It should also be noted that TSS have a history of owning minority stakes in public companies as long term investments, and it is possible they do the same with RDY.

Further, TSS made their offer public and then engaged directly with all major shareholders, us included. This again shows a willingness to deal directly with shareholders. While some companies and their advisers may not appreciate this approach, we respect it, as it is the shareholders that own the company at the end of the day.

The above is positive from the perspective of how it has highlighted the value of RDY and validated the investment thesis. There is no doubt that if TSS have offered $2/share that they think the company is worth substantially more.

However, it does highlight a material risk to RDY and that is that TSS, or any other potential acquirer, could quite easily establish a blocking stake in the company at undervalued prices.

A key aspect of our investment thesis in RDY is that Pemba, a high-performing and well-regarded private equity firm, would at some point in the future look to exit this business and run a sale process to do so. At that point, we would be able to receive the full value of RDY, which in our view is significantly higher than the today’s price – a view TSS (and Pemba) must agree with.

But if TSS secures a stake of 10-20% that could effectively give them a blocking stake, complicating any future sale process.

Our view is that TSS still can employ various options to acquire this stake and was one of the reasons we wrote to the RDY board.

Had TSS followed up their offer with an unconditional, on-market cash offer at $2/share, there was a good chance (in our view) they would have secured a reasonable stake. Had they have lifted it even modestly, the odds improve.

That would be great for the stock in the short term, but potentially an issue for longer term holders like us who believe the stock to be worth $2.50-$4.50/share.

Why Does TSS want RDY?

Stepping back, it’s worth considering why TSS might want RDY, as it helps illustrate our original thesis.

The Topicus/TSS model is similar to Constellation. They are a serial acquirer of vertical market software businesses, though Topicus/TSS do seem to be more active in the public markets than Constellation historically has been.

Their businesses generate modest (mid-single digit) organic revenue growth, run at 30% free cash margins and then reinvest substantially all that free cash back into acquiring vertical software businesses.

Mid-single digit organic growth may seem modest, but we think it is closer to the natural rate of growth for businesses like TSS and RDY. These businesses are very valuable due to the incredibly sticky nature of their revenue, but this creates a dynamic whereby competitors are similarly hard to displace, making rapid growth difficult.

And it is this dynamic that has likely made RDY look so attractive to TSS at these prices. TSS is primarily present in Europe, although has begun to expand into Asia.

RDY offers TSS (or another acquirer) over $100m+ of high retention ARR in the verticals that TSS already operates within. This could act as a perfect platform asset in ANZ, off the back of which they could begin deploying their serial acquirer model in the region.

It would take an enormous amount of time and capital for TSS to organically build a platform of $100m+ ARR in ANZ, if it was even possible within any reasonable time frame.

There are very few other assets like RDY in the market today, and almost certainly not anywhere near the implied price of 2.3x EV/Revenue that TSS have offered.

Go and offer 2.3x EV/Revenue to Employment Hero or Humanforce. I suspect you will be laughed out of the room. It is only the unique dynamic of public markets temporarily giving up on RDY and software in general that has created this opportunity for TSS, and they’ve been bold enough to try to take advantage of it.

That is not to say that TSS must acquire RDY. They have no obligation or need to do anything further beyond what they’ve already done.

But it does serve to highlight the potential rationale TSS have for seeking to acquire RDY and perhaps gives some insight into why they’ve been so aggressive in going after it.

While the $2/share was unacceptable it may well be the starting gun. Our view is that TSS could modestly lift their offer and still generate exceptional returns from RDY, while gaining meaningful support from many shareholders.

What is RDY Worth?

When we wrote our original wire, we outlined our view that RDY was worth $2.50-$4.50/share. Our view remains the same.

As we mentioned in that note, valuation is about pricing a range of potential outcomes, rather than an exact science.

For towards $4.50 to be achievable it is certainly the case that the company would need to have some wins, particularly in the Enterprise Education segment, and start to show the ability to generate the types of cash margins we think are possible, and that they have achieved historically.

But it is also true that the lower end of our range prices a very conservative outcome, minimal to no further success in some of their growth areas and a very modest long term growth rate.

It is therefore clear that at $2/share, we are not sellers.

However, we are also cognisant that other shareholders may have different views. Further, our range of $2.50-$4.50 is admittedly broad, and there is a lot of room in there for TSS or another party to negotiate a successful deal.

To that end, while TSS is the first to publicly make their interest known, key to our thesis was that there is a long list of potential acquirers of RDY, including strategic buyers, listed companies and private equity.

To our mind though, the most logical acquirer is already on the register.

Pemba – In the Box Seat

Recall that Pemba is the largest shareholder in RDY with 32% having first backed CEO/Founder Marc Washbourne from the first acquisition, to a listing in 2019, and through to today.

We respect their model and success to date, but we have no insight into their thinking, planning or internal ability to complete the below, so please take it as pure speculation. We simply think it’s worth considering.

Pemba’s model is to back Founders in business models and verticals where they believe they can add value, typically involving a series of acquisitions, as has been the case with RDY.

They clearly back CEO Marc Washbourne and have a stated intention of supporting RDY in its push to build out its Enterprise strategy, something the public market has clearly given up on, which has created the opportunity.

While the TSS offer could bypass Pemba and others, any 100% acquirer of RDY needs to have Pemba on board. Pemba hold the keys.

But that also puts them in the box seat to acquire the rest of RDY, take it private, and see it through to completion of their Enterprise strategy. At which point, and potentially as the market’s AI-driven software fears have dissipated, they would be in a strong position to sell or relist the business.

This entire process kicked off by Topicus & TSS has also acted as a potential price clearing mechanism for Pemba (and others), whereby it has probably become clear what price most shareholders would accept.

Public markets can become incredibly impatient and myopic. The AI driven sell-off in SaaS may even be nearing an end. It is clear to us that a control transaction can be achieved here at a significant discount to true value, while still a significant premium to the market price.

Pemba could offer Marc the ability to roll his scrip into the private vehicle and continue building RDY. They could offer all shareholders the same thing, though they’re under no obligation to do so. We have been happy to accept scrip in similar takeover scenarios in the past, most recently with the acquisition of Mcgrath Ltd, which has proven to be a very successful private investment for us to date. We’d consider the same if offered it here, something we hope the Independent Directors keep in mind.

That’s Pemba’s opportunity. Whether they do it, or if they’re even considering it, is unknown to us. The same structure could potentially be pursued by a range of other private equity firms.

Given TSS has now publicly disclosed their interest in RDY, there is potentially a timer on how long this opportunity exists. Should TSS successfully acquire a blocking stake, the ability for Pemba (or another group) to complete a transaction at a favourable price significantly diminishes.

If the company does see its operational performance improve from FY27, as we expect, then an acquisition at discount prices becomes harder. The same applies should they be successful in any of the contract negotiations that they are publicly involved in. Now would be the optimal time for an acquirer to make a play.

Where To From Here?

The stock has appreciated modestly, but it remains significantly undervalued. The interest from TSS has validated the thesis for buying RDY. The public markets continue to ascribe near zero chance of the company winning new contracts or seeing cash margins improve substantially in FY27 onwards, both of which we assign a good probability to.

The FY26 results will be an opportunity to highlight some of the recently implemented initiatives. Many of these will not show up in the upcoming accounts, which may be messy as a result of any cost restructuring, rather they will be benefits that accrue in FY27 onwards. The market will be looking to guidance on future cash margins, while any contract wins would likely be a nice surprise.

We are happy to continue holding our RDY shares and backing the management team to execute on their strategy, with the share price likely to follow suit if they do.

That said, our sole objective as a fund manager is to generate strong returns for our investors. We remain very open to future offers from acquirers like TSS, subject to appropriate pricing and structure.

Letter to The Board of Readytech Ltd

9th June 2026

Dear Mr Tony Faure and the Board of Directors of ReadyTech Ltd,

We write to you as shareholders of ReadyTech (RDY) following the recent non-binding offer made by TSS. In the interest of transparency, we have bought more shares on market since the bid was made public.

We are supportive of RDY’s management team and strategy and believe both current market prices and the proposed TSS bid of $2/share (via scheme) materially undervalue the Company. As we outlined publicly in April our view is that RDY is worth between $2.50-$4.50/share, and recent events reinforce that view. Accordingly, we support the Board’s decision to reject the offer from TSS as currently proposed.

However, the TSS bid highlights to us the significant risk that RDY becomes the target of an opportunistic acquirer during a period in which the market is materially mispricing the underlying value of the business and its prospects. While we and (to our knowledge) other large shareholders would not support a bid at $2/share, we do believe there may be some in the market that would, or at a price not materially higher than $2/share, creating risk for those shareholders who remain supportive.

TSS is part of the Constellation Software Group of Companies, a group famous for their long-term track record and valuation discipline. We have met with TSS and they are clearly smart operators who deeply understand the market segments that RDY operates within. If TSS have made an offer for $2/share, we can be certain they have conviction that the company is worth considerably more than that.

The way TSS approached the bid also serves to highlight the risks posed to RDY. TSS were opportunistic, made their bid public and engaged directly with all material shareholders. They proposed various structures that could allow them to bypass RDY’s largest shareholder and gain control, or at the very least significant influence and a potential blocking stake against any future bids from other prospective acquirers.

TSS, or others, still can implement further strategies that may allow them to build a significant stake at undervalued prices, should they wish to. These include but are not limited to 1) an on-market, unconditional cash takeover bid that would likely allow them to build a stake of significance and 2) removing the 50.1% condition on the proposed off-market takeover bid.

The only factor that has prevented TSS from building such a stake has been price. The $2/share proposed under the scheme and $1.75/share via the takeover bid are unacceptable. But TSS, and no doubt other prospective buyers that we are certain are running the ruler over RDY, could still modestly lift their price and have a reasonable chance of building a significant stake.

As such, our view is that RDY should be on the front foot in playing defence. The longer the RDY share price remains substantially disconnected from underlying value, the larger the risk to RDY shareholders.

Our suggestions are the following:

1) RDY should implement an on-market buyback using the improved cash flows generated by the business to purchase as much stock at current prices as possible. We are comfortable with RDY’s balance sheet and anticipate free cash flow to improve significantly in FY27 following initiatives implemented in FY26. While we acknowledge this will make liquidity in the stock worse, we believe the value accretion for shareholders who retain their shares to be worth it, while the buyback allows any shareholders who wish to exit at these prices the ability to do so;

2) We strongly encourage RDY directors and officers to acquire shares on-market as soon as possible, acknowledging that directors are likely to be currently in black-out owing to contract discussions mentioned below and/or ongoing corporate activity. We are of the view that RDY is significantly undervalued. It has now become clear that a large, well informed strategic investor in TSS agrees. It would be perceived positively by the market to see that RDY insiders agree too. While any director purchases need to be disclosed to ASX, we’d encourage you to disclose purchases by any other RDY insiders, as a positive signal to the market;

3) Divestments should be a priority. We believe there is an opportunity for RDY to accelerate its publicly stated goal of expanding cash margins by divesting certain assets and encourage the Board to explore this as deeply as possible.

It is public knowledge that RDY is in the final stages of several potentially material contract wins, and we acknowledge that little can be said unless and until those contracts are finalised. However, we do believe that the upcoming FY26 results will be an opportunity for RDY to highlight recent initiatives made that should lead to improved results from FY27 onwards.

At HD, owing to our investment strategy, we frequently find ourselves in situations like this. Having material investments in good quality businesses that for one reason or another are trading at large discounts to their underlying value and become takeover targets to strategic acquirers or private equity. It is also common that they are led by Founder/CEOs, as is the case with ReadyTech, who may be attracted to the allure of a private equity acquirer offering them the ability to roll their equity and continue their company building journey away from public markets – a position we can empathise with. Private equity firms both in Australia and globally would not be doing their jobs if they weren’t seriously considering this today.

While such an offer would be a sugar hit for shareholders in the short term, the risk is that if enough shareholders take the bird in the hand or if all shareholders weren’t also offered an ability to roll, that the above is completed at a price that materially undervalues the Company and its longer-term prospects.

For this reason, we believe the RDY Board of Directors, particularly the Chairman and Independents, have a responsibility to implement initiatives to assist the re-rate of RDY shares in the market, and reduce the risks to the company outlined in this letter.

We’d like to reaffirm that we are strong supporters of Marc, Bryce and the RDY team, and are happy to continue the journey with them as RDY’s performance improves and the share price re-rates as a publicly listed company. At the same time, we are commercial investors, and would entertain an offer from an acquirer, subject to appropriate pricing and structure.

Our suggestions in this letter are intended to ensure RDY puts itself in the best position possible should another offer emerge.

Thank for your time and we remain very willing to continue the discussion.

Kind regards

Harley Grosser & Daniel Sims