Quick Pitch: IntelliCentrics Global Holdings (6819:HK)

Special dividend/liquidation – 12%+ Upside

This is a very tiny trade with US$20k daily trading volume, actionable for small PAs only.

IntelliCentrics provides vendor credentialing software for the US healthcare sector. While pretty much all of its business is in the U.S., the company is listed on Hong Kong stock exchange. IntelliCentrics has recently announced a sale of the business to a privately held peer Symplr for US$220m-US$234m. After the deal closes, the company will return most of the proceeds to shareholders through a special dividend and then will wind down the RemainCo. The special dividend is expected to be between HK$4.07-HK$4.30/share. The stock is currently trading at HK$3.63/share, offering a double-digit spread. I would expect any distribution to be treated as a return of capital, and therefore free of any dividend taxes. Further distributions or upside from the RemainCo wind-down will probably be immaterial as most of the retained cash will go towards covering debt and transaction/liquidation expenses.

The buyer seems credible and there’s no financing risk. Symplr is a roll-up of various SaaS businesses focused on the healthcare space (data management, workforce management, compliance, safety, etc.), backed by Clearlake Capital, a PE firm with $70m AUM. Symplr was on an acquisition spree a few years ago, closing 11 deals between 2018 to 2022. This is its first buyout after a 2-year gap and not a large one in comparison. When Symplr acquired Midas for $340m in 2022, Moody’s said it was one of the smaller takeovers for the buyer.

So why does the spread stand at double digits? Part of it could be explained by the fact that this is a rather illiquid and tiny US business listed in Hong Kong. The company is likely under-followed and I haven’t seen the situation covered anywhere else so far. However, there are two potential risks:

  • The sale will require US antitrust approval. While this is a tiny transaction, both the buyer and the target are significant players in the niche market of healthcare credentialing software. This report suggests that the Healthcare Credentialing Software market size in the US is about $740m. IntelliCentrics generated US$44m revenues in FY23, implying 6% market share. Nonetheless, the company isn’t even mentioned among the largest players in the market research reports (here and here), but Symplr is. Thus I suppose the market share of the buyer is substantially larger, but I was not able to find more detailed info. All other peers are also private companies. So in the end it is not really clear if the combination of IntelliCentrics/Symplr would trigger antitrust concerns. Regulatory issues might also explain why the long-stop-date-delay payment has been quite emphasized in the sale terms – Symplr will have to pay US$0.3m to IntelliCentrics for each month the closing gets delayed beyond the long stop date up to 5 months. The exact long stop date hasn’t been set yet.
  • The transaction will require consent from 75% of outstanding shareholders and also not more than 10% of the disinterested stockholders objecting to this deal. Management owns 74%, so the first condition will pass easily. I think the second one will also pass easily, but is a bit more complicated. This asset sale + wind-down was announced at the time of all-time low share price for IntelliCentrics. Shareholder distributions are expected somewhere in the low HK$4s, while the stock was trading at HK$5/share just a few months ago. IntelliCentrics stock tumbled to current levels at the end of September after annual results indicated declining subscriber/client numbers and deeper EBIT losses. Revenue still grew 8%, in line with the previous year’s level – yet this was driven purely by pricing increases. Thus there is a small risk that some minority shareholders will consider the asset sale price as too low and will object to the deal. On the positive side, IntelliCentrics does not seem to have any other major shareholders that could block the merger singlehandedly or in a small group.

 

A few other things

Both parties will decide on the final operating business sale price before closing. The consideration increase above the minimum US$220m could come from 4 sources:

  • Extended long-stop payment. The payment is $0.3m for each month up to 5. Maximum amount is US$1.66m.
  • Lease termination payment for IntelliCentrics HQ ends up lower than the set threshold of $5.67m. Any gain from the lower lease payment will increase the consideration. The HQ accounts for almost all of the company’s lease liabilities which was at $7.15m as of June. Annual rent is around $1.5m, so the $5.67m threshold implies the termination payment at almost 4x annual rent, which seems a bit high.
  • The amount by which IP asset transfer tax (some of the IP IntelliCentrics will retain out of the sold operating business) is less than $0.7m.
  • Severance payments are below $7.8m.

IntelliCentrics had $11.7m of cash and $23.9m debt as of June’23. The company will also retain $26.3m from the asset sale. Besides covering the debt, the company expects to spend $8m on the transaction expenses and $6m on working capital needs/winding up costs.

8 Comments

8 thoughts on “Quick Pitch: IntelliCentrics Global Holdings (6819:HK)”

  1. Do you have any guess on how long such transaction typically takes? Or how long Symplr took before to complete their acquisitions?

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    • I would expect the transaction to close in 2-3 months, barring any significant regulatory pushback. Symplr’s previous acquisitions, some of which were larger, were generally completed within this timeline. See several examples below:

      – Midas ($340m, acquired from Conduent): announced in Jan’22 and completed in Feb’22.
      – API Healthcare (c. $300m): announced in Feb’19 and closed in Apr’19.
      – TractManager: announced in Oct’20 and completed in Dec’20.
      – Halo Health: announced in Sep’21 and closed in Oct’21.

      The long stop date was set for May 9, which also suggests a 2+ months timeline, although it can be extended by up to 5 months (to October 9).

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  2. IntelliCentrics equity holders are set to vote on the pending asset sale on April 18. The special dividend record date has been set to April 25. The dividend is expected to be paid on or before May 7 and the stock is anticipated to be delisted on May 8. IntelliCentrics shares are currently trading at HK$3.96/share vs the expected special dividend of HK$4.07-HK$4.30/share.

    https://www1.hkexnews.hk/listedco/listconews/sehk/2024/0328/2024032804730.pdf
    https://www1.hkexnews.hk/listedco/listconews/sehk/2024/0328/2024032800383.pdf

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  3. Following shareholder approval, the asset sale transaction is set to close on April 25. Today was the last trading day for the company on the Hong Kong stock exchange. The stock price closed at HK$4.07/share, at the lower limit of the expected special dividend range. The final dividend size hasn’t been detailed yet. The idea has played out with 12% gain in 2 months with up to 6% incremental profit if the dividend ends up at the upper limit of HK$4.30/share.

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