Esker — Proposed bid for the company confirmed

Esker (PAR: ALESK)

Last close As at 15/11/2024

EUR259.80

0.20 (0.08%)

Market capitalisation

EUR1,574m

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Research: TMT

Esker — Proposed bid for the company confirmed

Alongside its H124 results, Esker confirmed that Bridgepoint, in association with General Atlantic and management shareholders, is proposing a cash public tender offer for the company at €262 per share. This represents a 30% premium to the unaffected share price on 8 August. The supervisory board has welcomed the principle of the offer. If the tender offer is successful (ie 60% or more of shares are tendered), the deal is expected to complete in late Q424 or early Q125.

Katherine Thompson

Written by

Katherine Thompson

Director

TMT

Esker

Proposed bid for the company confirmed

H124 results

Software and comp services

25 September 2024

Price

€266.4

Market cap

€1,579m

$1.11/€

Net cash (€m) at end H124

48.2

Shares in issue

5.9m

Free float

78%

Code

ALESK

Primary exchange

Euronext Growth Paris

Secondary exchange

OTCQX

Share price performance

%

1m

3m

12m

Abs

14.6

48.1

105.2

Rel (local)

14.2

49.9

94.8

52-week high/low

€266.4

€111.7

Business description

Esker provides end-to-end SaaS-based document automation solutions supporting order-to-cash and procure-to-pay processes. In FY23, the business generated 53% of revenues from Europe, 41% from North America and the remainder from Asia and Australia.

Next events

Q324 revenue update

15 October

Analyst

Katherine Thompson

+44 (0)20 3077 5700

Esker is a research client of Edison Investment Research Limited

Alongside its H124 results, Esker confirmed that Bridgepoint, in association with General Atlantic and management shareholders, is proposing a cash public tender offer for the company at €262 per share. This represents a 30% premium to the unaffected share price on 8 August. The supervisory board has welcomed the principle of the offer. If the tender offer is successful (ie 60% or more of shares are tendered), the deal is expected to complete in late Q424 or early Q125.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/22

159.0

23.4

3.04

0.75

87.5

0.3

12/23

178.5

19.8

2.48

0.65

107.5

0.2

12/24e

201.5

26.6

3.29

0.83

80.9

0.3

12/25e

228.9

32.2

3.92

1.00

68.0

0.4

Note: *PBT and EPS (fully diluted) are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Bid confirmed, values company at €1.6bn

On 12 August Esker confirmed it was in discussions with Bridgepoint regarding a potential offer for the company. On 19 September, Esker confirmed that a company controlled by Bridgepoint intends to launch a tender offer for all outstanding shares. At €262 per share and on a fully diluted basis, the bid values the company at €1,621m. The offeror expects to file the tender offer with the French authorities as soon as it has received a favourable opinion from the supervisory board. Once launched, the tender offer is expected to be open for five weeks, with the potential for a two-week extension. The current management team is expected to remain with Esker and will work with the new owners to accelerate the growth of the company.

FY24 outlook and estimates maintained

H124 revenue increased 13% y-o-y, operating profit increased 30% y-o-y (operating margin 12.8%) and net income increased 25% y-o-y. Management confirmed that it continues to expect constant currency organic revenue growth of 12–14% and a 12–13% operating margin in FY24. We maintain our forecasts.

Valuation: Bid values company at 7.8x FY24 revenue

The stock has risen slightly above the proposed offer price, suggesting the market is factoring in the possibility of a counter-bid. At the bid price of €262 per share, the company is valued on an EV/sales multiple of 7.8x FY24e and 6.9x FY25e. On an EV/EBITDA basis, the company is valued at 40.6x FY24e and 34.6x FY25e. Based on competitors that have been acquired over the last three years, this valuation is at the upper end of the range, in our view reflecting Esker’s strong track record of profitable growth and prospects for double-digit revenue growth.

Proposed offer for the company

On 9 August, press reports suggested that Esker was in discussions with Bridgepoint regarding a potential offer for the company. On 12 August, the company confirmed that this was the case, noting that it regularly held discussions with potential buyers.

On 19 September, the company announced that Bridgepoint, in association with General Atlantic and management shareholders, had proposed a cash public tender offer for Esker shares.

Terms of the proposed deal

The bidding company, Boréal Bidco SAS, is a company controlled by Bridgepoint Group plc. Boréal Bidco plans to launch a tender offer for all Esker shares at a cash price of €262 per share.

Steps to be completed include:

The supervisory board has appointed an independent expert, Finexsi, to provide a fairness opinion on the financial terms of the offer. The supervisory board has set up an ad hoc committee comprising the three independent directors: Marie-Claude Bernal, Jean-Pierre Lac and Nicole Pelletier Perez. The committee will supervise the work of the independent expert and make recommendations to the supervisory board, in particular, with regard to the independent expert’s report. It will also consider the opinion of the company’s works council before issuing a reasoned opinion on the offer.

Boréal Bidco expects to file a proposed public tender offer with the Autorité des marchés financiers (AMF) as soon as possible after the supervisory board delivers a unanimously favourable opinion.

The offer would be opened during Q424, subject to the Italian foreign investments control authorities’ clearance.

Closing of the offer should take place by the end of Q424 or at the latest during Q125, subject to obtaining the required anti-trust clearances.

If the number of shares tendered does not reach 60% of shares outstanding, Boréal Bidco has the right to withdraw the offer.

If more than 90% of shares are tendered, Boréal Bidco will request the implementation of a mandatory squeeze-out procedure.

Break-up fees are payable: €30m by Esker if the supervisory board does not issue its reasoned opinion despite having received a fairness opinion from the independent expert or if the supervisory board recommends a competing offer or if a competing offer is successful; €10m by Boréal Bidco if it does not file the proposed offer with the AMF despite the satisfaction of relevant conditions.

Management reinvesting in the deal

CEO Jean-Michel Bérard and COO Emmanuel Olivier together hold 670,623 shares (c 10.8% of fully diluted share capital) and have undertaken to tender a portion of their shares to Boréal Bidco and to make a contribution in kind of their remaining shares to an entity directly or indirectly controlling Boréal Bidco. Management noted that Bridgepoint wants to keep the entire Esker management team.

Deal rationale

Management commented that in recent years, the burden of being a public company had prevented it from investing for growth at the pace it would have liked. An increasing proportion of management time was required for investor relations and the company valuation prevented it from participating in certain deals, as it could not bid as high or as quickly as some competitors. As a private company, management expects to work on a five-year plan that should allow the company to invest more in growing the business upfront without having to meet public market expectations for operating margins. It should also give the company more flexibility if suitable acquisition targets arise.

Valuation reflects track record of growth

The price represents a 30.1% premium to the share price on 8 August, the day before press speculation began regarding a potential offer. It represents a 37.2% premium over the last three months, 43.6% over the last six months and 62.4% over the last 12 months.

In the table below, we show how this values Esker based on our forecasts for FY24 and FY25. We also provide details of deals in the same market over the last three years. The higher valued deals have typically been for those companies with strong forecast revenue growth. Coupa’s growth expectations were lower than for Pagero and Billtrust, but the company was highly profitable and we believe this was factored into the valuation. It is also worth noting that average one-year forward EV/sales multiples for US SaaS companies have ranged from as high as c 20x in 2021 to c 6x today.

Exhibit 1: Esker valuation at offer price versus recent deals

Target

Bidder

Date completed

C’cy

Value
(m)

Enterprise value (m)

Rev growth

EBITDA margin

EV/sales (x)

EV/EBITDA (x)

FY1e

FY2e

FY1e

FY1e

FY2e

FY1e

FY2e

Esker

Bridgepoint/

General Atlantic

N/A

1,621

1,573

13%

14%

19%

7.8

6.9

40.6

34.6

Proactis

Pollen St/DBAY

Jul 2021

£

74.9

121.4

3%

3%

25%

2.4

2.3

9.5

8.7

Bottomline

Thoma Bravo

May 2022

$

2,600

2,600

10%

11%

20%

5.0

4.5

24.7

22.5

Tungsten

Kofax

Jun 2022

£

70.6

68.7

7%

3%

12%

1.8

1.7

14.3

12.5

Basware

Longpath/Briarwood/ Accel-KKR

Jul 2022

619.9

660.2

5%

9%

15%

4.1

3.7

27.2

22.0

Kofax

Clearlake/TA

Jul 2022

$

3,000

3,000

N/A

N/A

30%

4.0

13.3

Billtrust

EQT

Dec 2022

$

1,700

1,552

55%

22%

loss-making

9.2

7.5

N/A

N/A

Coupa

Thoma Bravo

Feb 2023

$

8,000

8,000

16%

18%

25%

9.5

8.1

38.8

43.8

Pagero

Thomson Reuters

Jan 2024

SEK

8,059

8,344

33%

33%

loss-making

7.9

6.0

N/A

N/A

Source: Edison Investment Research, company accounts, LSEG Data & Analytics, press articles

Review of H124 results

Exhibit 2 summarises the H124 results.

Exhibit 2: H124 results highlights

€m

H124

H123

y-o-y

Revenues

99.2

87.9

13.0%

EBITDA

19.2

15.7

21.8%

EBITDA margin

19.3%

17.9%

1.4%

Reported operating profit

12.7

9.8

29.9%

Operating margin

12.8%

11.2%

1.7%

Reported net income

9.3

7.5

24.6%

Net cash

48.2

33.5

43.8%

Source: Esker

The company had already reported Q224/H124 revenue and bookings in July. Revenue for H124 was 13% higher year-on-year on a reported and constant currency basis. Reported operating profit was 30% higher year-on-year. As previously discussed, the company slowed the pace of hiring during H124, with average headcount only increasing 7.8% y-o-y to 1,042 (end FY23 headcount: 1,028). Personnel and related tax expenses totalled €62.5m, up 14% y-o-y. The company explained that underlying salary costs had increased 8.6% y-o-y, with roughly half the increase from higher headcount and the remainder from salary increases. The company accrues for tax on free shares – as the value of shares has increased this year (from €155.8 on 1 January to €175.7 on 30 June) this has increased compared to last year. The company has also accrued for profit sharing at a higher level than the prior year (€3.4m vs €2.3m in H123). Purchase and external expenses only grew 3% y-o-y. Overall, total costs increased 10.8% y-o-y, resulting in operating margin expansion from 11.2% to 12.8%. After net interest income of €0.6m, a joint venture contribution of €0.5m and a tax charge of €4.5m, Esker reported net income of €9.3m, +25% y-o-y.

Net cash at the end of H124 increased to €48.2m from €42.7m at the end of FY23.

Management maintained its FY24 guidance for constant currency revenue growth of 12–14% with an operating margin in the range of 12–13%. We maintain our forecasts.

Product news

Launch of Synergy Transformer AI to streamline order processing by optimising data extraction, using a custom-trained language model. It increases automation by 6% compared to the previous iteration of the software, reaching a 92% recognition rate. The smaller model size is more sustainable and resource efficient than the generative pre-trained transformer models such as ChatGPT.

PDP registration: in August, the company was officially registered by France’s Direction Générale des Finances Publiques (DGFiP) as a plateforme de dématérialisation partenaire (PDP) for electronic invoicing. The application was originally submitted in June 2023. Esker has been working with a group of customers from a range of industries and with its network of partners to prepare the pilot phase project.

Exhibit 3: Financial summary

€'m

2019

2020

2021

2022

2023

2024e

2025e

Year end 31 December

French GAAP

French GAAP

French GAAP

French GAAP

French GAAP

French GAAP

French GAAP

PROFIT & LOSS

Revenue

 

 

104.2

112.3

133.6

159.0

178.5

201.5

228.9

EBITDA

 

 

20.1

21.9

25.7

31.8

29.6

38.7

45.5

Normalised Operating Profit

 

 

12.8

14.0

16.8

21.7

18.2

25.0

30.7

Amortisation of acquired intangibles

(0.4)

(0.4)

(0.3)

(0.3)

(0.3)

(0.3)

(0.3)

Exceptionals and other income

(0.1)

0.0

0.0

0.0

0.0

0.0

0.0

Operating Profit

12.4

13.6

16.6

21.4

17.9

24.7

30.5

Net Interest

0.3

(0.1)

0.2

0.3

0.6

0.7

0.5

Associates & joint ventures

0.5

0.5

1.0

1.5

1.1

1.0

1.0

Exceptionals

0.0

0.5

0.4

(0.3)

0.1

0.0

0.0

Profit Before Tax (norm)

 

 

13.6

14.5

18.0

23.4

19.8

26.6

32.2

Profit Before Tax (FRS 3)

 

 

13.1

14.5

18.2

22.9

19.6

26.4

31.9

Tax

(3.4)

(3.0)

(3.9)

(5.0)

(4.8)

(6.3)

(7.7)

Profit After Tax (norm)

10.1

11.5

14.2

18.3

15.0

20.2

24.5

Profit After Tax (FRS 3)

9.7

11.6

14.3

17.9

14.9

20.0

24.3

Ave. No. of Shares Outstanding (m)

5.4

5.7

5.8

5.9

5.9

5.9

6.0

EPS - normalised (€)

 

 

1.86

2.03

2.42

3.11

2.55

3.40

4.05

EPS - normalised fully diluted (€)

 

 

1.79

1.99

2.37

3.04

2.48

3.29

3.92

EPS - (GAAP) (€)

 

 

1.80

2.04

2.44

3.04

2.53

3.37

4.01

Dividend per share (€)

0.33

0.50

0.60

0.75

0.65

0.83

1.00

Gross margin (%)

N/A

N/A

N/A

N/A

N/A

N/A

N/A

EBITDA Margin (%)

19.2

19.5

19.2

20.0

16.6

19.2

19.9

Normalised Operating Margin (%)

12.3

12.5

12.6

13.6

10.2

12.4

13.4

BALANCE SHEET

Fixed Assets

 

 

47.2

49.0

57.2

71.7

75.9

79.9

83.4

Intangible Assets

29.3

30.8

33.6

47.7

51.4

54.4

56.9

Tangible Assets

10.4

10.0

9.9

9.0

8.7

8.7

8.7

Other

7.4

8.2

13.7

15.0

15.9

16.9

17.9

Current Assets

 

 

52.0

72.9

71.5

90.7

96.4

110.3

128.4

Stocks

0.2

0.3

0.3

0.5

0.3

0.4

0.4

Debtors

30.0

31.4

35.5

46.2

46.2

52.8

60.9

Cash

21.4

40.4

35.0

42.9

48.8

56.1

65.9

Other

0.5

0.8

0.7

1.1

1.1

1.1

1.1

Current Liabilities

 

 

(34.3)

(50.2)

(45.9)

(45.6)

(49.8)

(52.7)

(56.3)

Creditors

(34.3)

(38.7)

(44.7)

(45.6)

(49.8)

(52.7)

(56.3)

Short term borrowings

0.0

(11.5)

(1.2)

0.0

0.0

0.0

0.0

Long Term Liabilities

 

 

(8.3)

(6.3)

(2.5)

(18.1)

(14.2)

(12.2)

(10.2)

Long term borrowings

(6.5)

(3.6)

0.0

(15.0)

(10.9)

(8.9)

(6.9)

Other long term liabilities

(1.8)

(2.7)

(2.5)

(3.1)

(3.2)

(3.2)

(3.2)

Net Assets

 

 

56.6

65.4

80.4

98.6

108.4

125.3

145.4

CASH FLOW

Operating Cash Flow

 

 

20.3

24.4

28.8

22.9

36.4

36.1

41.8

Net Interest

0.4

(0.0)

0.3

0.2

0.4

0.7

0.5

Tax

(3.3)

(0.9)

(3.4)

(4.5)

(5.3)

(6.3)

(7.7)

Capex

(11.0)

(10.2)

(11.1)

(14.7)

(16.0)

(17.0)

(17.5)

Acquisitions/disposals

(0.5)

(0.5)

(5.9)

(7.5)

(1.1)

0.0

0.0

Financing

1.4

0.0

2.8

1.1

0.3

0.0

0.0

Dividends

(2.2)

(1.9)

(2.9)

(3.6)

(4.5)

(4.0)

(5.2)

Net Cash Flow

5.0

11.0

8.5

(6.0)

10.2

9.4

11.9

Opening net debt/(cash)

 

 

(16.6)

(21.0)

(30.3)

(38.6)

(32.6)

(42.7)

(52.0)

HP finance leases initiated

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Other

(0.6)

(1.7)

(0.2)

(0.1)

(0.1)

(0.0)

0.0

Closing net debt/(cash)

 

 

(21.0)

(30.3)

(38.6)

(32.6)

(42.7)

(52.0)

(63.9)

Source: Esker, Edison Investment Research


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This report has been commissioned by Esker and prepared and issued by Edison, in consideration of a fee payable by Esker. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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United Kingdom

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Research: Healthcare

Basilea Pharmaceutica — BARDA backs Basilea’s anti-infectives programme

Basilea has bagged a multi-year agreement with the Biomedical Advanced Research and Development Authority (BARDA), potentially worth US$268m, to advance its anti-infectives franchise. The Other Transaction Agreement (OTA) will include an initial payment of US$29m to support clinical development work for fosmanogepix and BAL2062 as they prepare to enter the next phase of clinical development. The agreement will last up to 12 years and management expects it to cover 60% of its development costs related to the covered programmes over the period. These expected inflows have triggered another guidance upgrade for FY24 (revenue of CHF203m, from CHF196m previously) with a significant uptick in the bottom line on increased deferred taxes (net profit guided to be CHF60m vs CHF42m previously). We have adjusted our estimates to reflect the potential non-dilutive funding from BARDA, with our valuation increasing to CHF95.3/share, from CHF89.7/share previously.

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