Current Price: $6.95
Offer Price: $7.50
Upside: 8%+
Expected Closing: TBD
This idea was hinted by snowball.
It’s been a while since we’ve posted a non-binding U.S. listed Chinese takeover case, however, this one seems a bit more interesting due to buyers’ reputation and protected downside.
Chinese marketing cloud platform services company Click Interactive received two non-binding acquisition proposals from PE buyers. The first one came from Oasis Management and PAG Pegasus at $6.75/share on the 24th of September. A month later Infinity Equity Management offered $7.50/share. Following the second offer, the company formed special committee and hired Nomura International. 8% spread remains to the latest bid with a speculative chance of another price bump. Downside is protected by the lower bid.
Management has 11% economic and 62% voting interest in the company. Both buyer groups expect management together with some other shareholders to join the consortiums and roll the ownership.
The rationale for staying public is limited given the current market hostility towards U.S. listed Chinese companies. The company used to burn cash and has raised substantial amounts of equity since its IPO (2017), but the need for that has now disappeared as the company turned profitable. Being a Chinese microcap, ICLK will hardly be able to reach any meaningful valuation levels despite strong business growth. Mid-August shares were trading almost 40% lower at $4.20+/share. At the +current market price, ICLK is valued at only 2x 2021 revenues despite one of the segments growing at a +160% clip (subscription-based cloud software) and another one at +22%.
Oasis/PAG consortium are highly reputable investors. Oasis is a prominent Asian activist hedge fund with a solid track record (e.g. Nintendo campaign to focus on mobile games and, more recently, RENN litigation settlement). PAG is a large US$45bn Japanese asset manager.
Infinity (the second bidder) is a much smaller player – their website states that it is an Israeli-Chinese equity fund backed by China Development Bank with US$1.5bn AUM and 23 funds. ICLK buyout would likely be the largest investment of the fund so far – its largest “successful exit” seems to have been worth $140m vs ICLK EV of around $630m.
10% ICLK shares are held by BZUN (a Chinese e-commerce firm listed in the U.S. with a $1.5bn market cap) after both companies started cooperating on certain projects development activities back in Jan’21. Apparently, Infinity was one of the earlier BZUN investors and held around 6.6% after its IPO in 2015. Infinity’s website still shows it as an active investment, although they are no longer among the major BZUN shareholders.
Aside from management and BZUN (10%), there are no other major shareholders.
In the worst case scenario, management could reject both offers. In such case, the downside to pre-announcement stands at 17%, however, ICLK share price used to be depressed due to being a micro-cap Chinese firm with limited business visibility and ongoing dilution due to cash burn. Now that the business is profitable and several PE firms have pretty much confirmed the legitimacy of the business, the actual downside could be lower.
Business Background
The company has two business segments:
- Marketing Solutions – integrated cross-channel platform/software, which helps clients to distribute marketing content and reach target audience across various channels. Revenues are fee-based driven by the size of client’s marketing budget.
- Enterprise – in May 2018 ICLK decided to leverage its data pools and launched the SaaS-based Enterprise segment, which is focused on data analytics, campaign/target audience analysis and also offers various mini-programs for customer engagement, etc. The enterprise segment is based solely on Tencent’s API connection and WeChat ecosystem. Revenues are subscription-based and have higher margins compared to Marketing Solutions segment.
Historically, the Marketing Solutions segment has been growing at around 20%+ annually. The Enterprise segment has been highly successful (partly from cross-selling) and continued at 100% albeit from a smaller base. The segment now generates 17% of total ICLK revenues (table below). At these growth rates, the value of subscription Enterprise Solutions segment alone could justify the valuation of ICKL (i.e. 10x revenues, compares favorably to other listed SaaS businesses).
Note that Infinity has a history with ICLK and its founder.
Infinity participated in ICLK’s June 2020 private placement, when ICLK was short in cash.
https://ir.i-click.com/2020-06-17-iClick-Interactive-Asia-Group-Limited-Announces-Its-Private-Placement
Also, in a SPAC (Magnum Opus Acquisition, ticker OPA) chaired by ICLK founder Sammy Hsieh, Infinity’s vice chairman Kersten Hui also serves as Chairman of the Advisory Board.
https://www.prnewswire.com/news-releases/magnum-opus-acquisition-limited-raises-us200m-spac-ipo-to-capitalize-on-the-convergence-of-consumption-and-technology-301256241.html
In a Chinese language interview, Hui also mentioned that he personally led the 2020 private placement deal with ICLK.
Interestingly, based on 13F filings (2021Q2), Oasis is in quite a few arb positions also mentioned in SSI, including JOBS, NFH, HOLI, TEDU, and convertible debt of YY.
JOBS is in fact their largest position, accounting for 18.4% of their 13F holdings.
The actual weight of JOBS in their fund is likely much smaller, as 13F does not include non-US holdings, and Oasis is more active in Asia Pacific (Hong Kong, Japan, Australia) than in US.
The share price has deteriorated a bit and currently, there’s a 3% spread to Oasis’ offer and 15% to Infinity’s offer. Of course, both offers are non-binding.
Q3 results are out. I don’t see any mentioning of the offers.
https://www.prnewswire.com/news-releases/iclick-interactive-asia-group-limited-reports-2021-third-quarter-unaudited-financial-results-301433755.html
Now (ICLK @ $5.84) there’s a 16% spread to Oasis’ $6.75 offer and 28% to Infinity’s $7.5 offer. Looks like the deal is going to break.
There’s always plenty of uncertainty and lack of visibility involved with US-listed Chinese takeovers. Especially when buyers are PE firms and not the management, which controls the majority of votes. As you’ve mentioned, there were no details on the offers in Q3 and, moreover, the board increased the repurchase program from US$15m to $25m. I guess the market interpreted it as the board being not interested in selling. Other than that, Q3 results were pretty solid. Shares are close to pre-announcement prices now.
Spread increased to over 60% now. No new updates have been released yet.
Today a $20 million share repurchase program was announced for 2022, explaining the price jump. Yet no new updates. Maybe they buy back stock to decrease the buyer´s premium? They reason the buyback with stating confidence in the growth of their business model.
386K shares sold at 11:10 today. Price tanked further after the print at $2.80. Can’t find any news, another China mystery.
what is going on w this thing
We are removing ICLK from the active ideas as the thesis is no longer valid. The company’s share price has been destroyed due to the Chinese tech crackdown and negative market sentiment toward the Chinese stocks. -87% in 6 months.