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.

3 Comments

3 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

    Reply
    • 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.

      1
      Reply
  2. BTW, shareholder meeting is set for March 8, 2024. I guess the deal will close shortly after the meeting. 3.3% spread remains.

    1
    Reply

Leave a Comment