Quick Pitch: iClick Interactive Asia Group (ICLK)

Chinese Privatization – 8.5% Upside

 

Just a quick note on this Chinese privatization – the upside is tiny, but closing is in the coming months. Thank you Jakob for bringing this to my attention.

ICLK is getting privatized by management consortium at $4.03/ADS (after ADS cancellation fees). The definitive agreement was signed at the end of November and follows the Dec’22 non-binding proposal at pretty much identical terms. Management and rollover shareholders have 69% voting control guaranteeing shareholder approval. Financing is in place and closing is expected in Q1 2024. If the deal breaks, downside stands at 50%.

While it might seem as a picking-up-pennies-in-front-of-a-steamroller setup, I think this is as close to a done deal as you can get with a Chinese privatization (famous last words). Management seems to be well incentivised to take this one private.

  • Management is buying ICLK below net cash levels. As of Dec’22 (the latest available financials) the company had $105m in cash and $44m in bank debt, summing up to $61m in net cash. This compares to equity value of $35m. They get the whole operating business – SaaS marketing and enterprise solutions – for free.
  • Company has already been repurchasing shares in the open market. During 2022 $7.5m was spent on buybacks reducing total share-count by 6%. A further $5m buyback program was announced for 2023. That’s quite unusual for a U.S. listed Chinese company where management has a voting control. This hints that the cash shown on the balance sheet is real and that management’s intentions of cashing out all minority shareholders are serious.
  • A large balance of accounts receivables (always a suspect for Chinese entities) was converted into cash during 2022 resulting in $71m cash from operations for the year.
  • There is no point in keeping the U.S. listing any more. In the eyes of the market ICLK is just another failed Chinese company. The stock is down 95% from the IPO levels in 2017. Management has successfully used the listing to raise $30m during IPO and a further $90m during covid boom years. Now part of this fortune will be used to buy out minority shareholders a fraction of the IPO price. This would also fit the trend of Chinese company delistings due to the changed geopolitical situation and more attractive valuations in China/Hong Kong.

19 Comments

19 thoughts on “Quick Pitch: iClick Interactive Asia Group (ICLK)”

  1. What do they do? GSMG traded tight but the operation looked to be completely fraudulent

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    • Haha, good question. Something something internet marketing China. Some good points though:

      – It wasn’t a reverse merger but an actual NASDAQ IPO.
      – Financials look pretty mediocre (that’s good in the sense that, well, if you want to screw over investors, well this doesn’t look convincing.
      – Their LinkedIn page looks legit. Lots of videos, pictures from conferences, etc. They still could be cooking the books but at least they appear to be doing something.
      – Financially the deal also looks sensible: IPO at $80 (adjusted for split), buy back at $4.

      Looks somewhat attractive to me but I treat it as all other Chinese going private deals: small position, don’t plan to buy more if the spread blows up.

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  2. BTW, shareholder meeting is set for March 8, 2024. I guess the deal will close shortly after the meeting. 3.3% spread remains.

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  3. https://www.sec.gov/Archives/edgar/data/1697818/000110465924032127/tm248324d1_ex99-1.htm
    The Merger Agreement, the Plan of Merger and the transactions contemplated thereby, including the Merger, were approved by approximately 99.77% of the total votes cast at the EGM.

    The completion of the Merger is subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement. The Company will work with the other parties to the Merger Agreement towards satisfying all other conditions precedent to the Merger set forth in the Merger Agreement and completing the Merger as quickly as possible. If and when the Merger is completed, it would result in the Company becoming a privately-held company and its ADSs would no longer be listed or traded on any stock exchange, including the NASDAQ Global Market, and the Company’s ADS program would be terminated.

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  4. Repeat after me: “This is not GSMG….this is not GSMG….please don’t let this be like GSMG.”

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  5. Does anyone know why the stock plunged yesterday (low of $2.83), then recovered about half of the loss?

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    • Haven’t seen any news related to the company or the merger itself. It could have been part of the general market sell-off throughout last week. But that’s just my guess, maybe I am missing something.

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      • If a Chinese merger that is about to close soon suddenly drops 20% I’d be extremely wary of attributing that to a ‘general market sell-off’. If that’s your best explanation you are probably the sucker at the table.

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      • I should’ve shorted this already. I was too chicken to short GSMG, but now that I’ve seen this before…

  6. The huge plunge on Thursday afternoon have the markings of a fat finger trade to me. Possibly someone put in a market order instead of a limit order on a thinly traded stock. A huge plunge, recovered roughly half, now shaking out the nervous nellies. Without any other info that’s my best guess. Obv none of us know. It’s what you get with the Chinese merger arb sits…the wild West.

    Precedent says it closes, but if it doesn’t the downside looks big given the cash burn.

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  7. most of those cases will close. GMSG and CXDC are the only ones i remember failed. GTH closed more than a month after shareholder approval. I think ICLK still can work out. Otherwise, why would insiders go through so much trouble to not close in the end, especially the deal seems so cheap.

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      • show me sth that works every time in investing, I’m all ears.
        Not much changed in the last a few days regarding this company: it went through NASDAQ IPO process in 2017 for $8/share. From what I saw, its business seems legit. Gun to my head, i think this deal closes. But i can very well be the sucker at the table so i size the position accordingly.

  8. This sell-off is a head-scratcher. No news at all. The total trading volume over the last week has only been $1m. The sell-off might have been driven by someone forced to exit the position at any price. If that is the case this is a fantastic buying opportunity. However, I am staying on the sidelines for now:
    – I cannot discount the possibility that something was disclosed/rumored in China and US investors are simply not aware of this new information yet.
    – The merger was initially expected to close in Q1 (as per press release of the definitive merger agreement). We are already in mid-Q2 and 1.5 months past shareholder approval with no explanation given for the delay.
    – The latest financials are as of Jun’23. If cash burn continued at similar levels as during H1’23, then today most of the cash balance is gone and we can no longer claim that management is privatizing the business on the cheap.

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