IndigoVision (IND.L) – Merger Arbitrage – 5% Upside With Considerable IRR

Current Price: £3.85

Offer Price: £4.05

Upside: 5%

Expected Closing: 15th of June

Scheme document

 

Trading volume is very limited (<10k per day) so this is actionable for small PAs only. IndigoVission is listed on London AIM market.

Video security systems provider IndigoVision is getting acquired by electronics giant Motorola Solutions for £4.05/share in cash (£30.4 million in total). Shareholder approval was received on the 11th of May, so the only remaining hurdle remains to be a sanctioning by the court. Companies estimate closing around 15th of June, so although the upside in absolute terms is not that high, an attractive IRR could potentially be realized.

The main question is whether the buyer will continue to comply with its obligations to close the transaction. I think the chances of successful closing are very high as 1) the agreement was made after the COVID-19 outbreak already started; 2) this a strategic acquisition of a speck size to the buyer; 3) if Motorola wanted out, it would've done that already, so at this point walking away seems unlikely.

Motorola stated that following its acquisition of Avigilon (video surveillance and analytics) in 2018, IndigoVision will further complement its video security segment (video analytics, network video management software and hardware, video cameras etc.) and offer numerous other benefits such as:

  • cross-selling opportunities.
  • improved cost/operational efficiency by replacing "current third-party manufactured IndigoVision products with Motorola Solutions products".
  • enhanced geographical reach across a wider customer base.  40% of IND sales are in Europe, Middle East and Africa, 32% - NA, 22% - Asia Pacific, 7% - Latin America.

Nonetheless, it should be noted that, as the offer premium is quite high (129% to pre-announcement close), in case things go south, the downside could be very material.

IndigoVision manufactures and markets video security systems (software, cameras, encoders, recorders etc.). The company's security camera technology is used in airports and by casinos and police forces, while its clients include BMW, IKEA, Amazon and the NHS.

4 COMMENTS

  1. Ilja

    Court sanction was received and the merger is expected to close today. Shareholders will receive the consideration in 2 weeks.
    The idea is closed with 5% in 1 month.

  2. nostradamus

    Congratulations. I would like to add though the practical feasibility to readers of an idea like this is very limited. It’s very illiquid (as you say yourself) and it’s AIM, which means the market maker basically decides which bid gets lifted (usually not yours) and the price regularly trades through your bid by a large margin.

    I’ve put in a bid a while ago (before the article), left it there, never got matched even though daily trades were regularly below my bid. That’s AIM for you unfortunately. That does mean it’s basically impossible to actually practically realize this theoretical 5% gain, or anything close to this.

    1. dt

      Agreed.

      This was not actionable for 99% (or more) of investors and those, who could enter the position on IND.L, were probably unable due to low liquidity.

      That is why we posted this under Quick Ideas and put a clear disclaimer in the first sentence on low liquidity and AIM listing. Also st the time we did not now the liquidity will be so low – it was higher in the week leading to the write-up.

      I still think it is valuable to have these kind of situation on the site. Since posting the write-up GBP50k shares changed hands. So someone managed to enter the position (obviously not necessarily from SSI).

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