Top Image Systems (TISA) – Merger Arbitrage – 5% Upside

Current price: $0.82

Offer Price: $0.86

Upside: 5%

Expiration Date: April 2019

This idea was shared by Dan.


This is a very small all cash cross merger that is expected to close in about 2 months.

Top Image Systems (TISA), an Israeli based business automation software provider, has received takeover offer from their larger peer in US – Kofax (owned by private equity firm Thoma Bravo). The consideration of $0.86 offers a 65% premium over the unaffected price. TISA’s BoD has already given their unanimous consent. For a $15m merger regulatory approvals should not be a problem. TISA’s shareholder meeting to vote on the transaction is scheduled for the 4th of April and the deal is expected to close shortly afterwards.

TISA has only 2 large shareholders: 10.5% owned by the founder and director Izhak Nakar and 13% is held by Trident Capital. Managing director of the Trident Capital is also the chairman in TISA. As BoD has approved the deal, 23.5% of the votes are already in the pocket. Given very poor business situation of Top Image Systems and the fact that even Trident has agreed to sell at a significant loss (cost basis c. $4/share), I expect that other shareholders should not hesitate to take the offered premium as well.

It seems that the motivation behind the deal is TISA’s client portfolio and potential cross-selling opportunities. As stated by Kofax’s CEO: “TIS customers will enjoy single-vendor access to Kofax’s Intelligent Automation solutions that deliver increased efficiency, enabling the human and digital workforces of tomorrow,”. Although I’m not an expert in this field, the buyer might also be interested in TISA’s foundational document process automation platform eFlow. Over the last year it has allowed TISA to sign three new customers in Italy and Hong Kong (here) and in Japan (here).

Kofax operates in document capture and information automation space.  In 2015 it was taken private by Lexmark International for $1bn and in 2017 acquired by Thoma Bravo. It is much larger than TISA (revenues of $375 vs $30m for TISA) and this merger a relatively tiny transaction for them. Last month Kofax has closed $400m acquisition of Nuance Communications document imaging division (more info here). The company has also made a number of other smaller acquisitions over the last decade. Overall, the risk of Kofax walking away is low.

Termination fees are: $561k from the TISA side and up to $750k from the Kofax side.

Financing will be done by cash on Kofax balance sheet. Closing is expected shortly after shareholder approval and due to short time-frame this would result in attractive 30% IRR.


Some Additional Background Info

TISA offers on-premise and cloud-based applications that optimize content-driven business processes such as procure to pay operations, remittance processing, integrated receivables, customer response management and more. 82% of sales come from services and 18% from licenses. Big part of clients are in the banking sector (37% of revenues). Although TISA still manages to sign new contracts, company’s performance has been very poor over the last few years with the constantly shrinking revenues (by 6% on average over the last 4 years), workforce reductions and cash burn.  Operations have been mostly financed by equity issuance resulting in sharp share count increase from 11.7m in 2013 to 18.2m (Q2 2018).

Trident Capital has became the main owner of TISA in 2014, when the later has completed the acquisition of eGistics in which Trident was the largest shareholder. $18m deal was paid by 50/50 cash and stock and Trident got a hold of 13.2% of TISA’s shares back then. At that time they were worth just over $9m, while now they are selling for $2m.



20 thoughts on “Top Image Systems (TISA) – Merger Arbitrage – 5% Upside”

  1. There is a special meeting vote, should I vote it or simply ignore it?

    • “Top Image Systems expects the merger to close during the second week of May.”

      • Nice. Don’t forget, Israeli deal: probably some paperwork after the delisting to avoid paying withholding taxes. Probably adds another 3-6 weeks.

      • Yes, your broker, like IB or Schwab, will eventually journal the cash funds into your account. You may see the TISA stock listed as something like 832842XX as its been delisted but you still have it. You don’t have to do anything.

      • Are you sure?

        I didn’t do this particular deal, but Israeli deals usually take a lot of paperwork and delayed payment for tax reasons (hence spreads usually seem a little bit bigger, but that could be me)

      • fair point! forgot it was an Israeli co. I’m asking Schwab now…

  2. Schwab said I didn’t need to do any more paperwork for the mandatory takeover of TISA- not sure on payment ETA though. I have not gotten paid out on TISA yet.

  3. FYI that I received an email from Interactive Brokers yesterday with the tax form.

    • Can anybody help me with the IB process?

      Holders may claim a full or partial exemption from such Israeli tax according to their residency, or if the holder has obtained a valid certificate from the Israeli Tax Authority. Such exemptions can be indicated accordingly on the Israeli Tax Declaration Form. A corresponding election within Account Management will then be required to facilitate the processing.

      If the form has not been provided, please contact IBKR Customer Service.

      Elections can be made as follows:

      Option 1 – Take no Action

      Option 2 – Full Exemption (no tax withholding)

      Option 3 – Tax withholding 23%

      Option 4 – Tax withholding 25%

      Option 5 – Other tax rate or exemption per certificate with ITA (such certificate must accompany the Tax Declaration Form)

      Under which curcumstances can I go with Option 2? I am a private shareholder from Germany

      Can anybody share some insights?

  4. And the Schwab rep was wrong- Schwab mailed me a form to fill out as well. Always tricky with corporate actions! Gotta cross every T and dot every i …

  5. A long, long, long time ago. Did you complete all the paperwork through your broker?


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