SOUTH AFRICA– Telecommunication specialist Huge Group has launched a takeover bid for fellow Johannesburg Stock Exchange (JSE) listed technology company Adapt IT, a surprising move at face value given that Huge focuses on telecommunications and Adapt IT on software and IT services.

The all-share bid, at an offer price of US$0.36 per share that values Adapt IT at US$53.2 million, does not enjoy the explicit support of Adapt IT’s board.

However, it is not immediately clear if the approach will be considered hostile by Adapt IT.

If all shareholders accept the offer, Huge Group will have to issue about 130 million new shares.

Huge Group CEO James Herbst, speaking to TechCentral after the company alerted shareholders about the offer, said that although Huge wants to buy 100% of Adapt IT, it will settle for a stake below that, too and if it is successful in buying all of Adapt IT, though, Adapt IT will be delisted from the JSE.

The offer was communicated two days ago to Adapt IT’s board and is now required, in terms of South African company law, to establish an independent board to evaluate the offer, Herbst said.

The US$0.36 per share offer represents a 33% premium to the 30-day volume-weighted average price at which Adapt IT has traded.

It is, however, well below Adapt IT’s share price in 2016, when it peaked above US$0.99 per share before a multi-year disintegration in its valuation.

“Based on a reference price of a Huge Group share of US$0.4, Huge Group is prepared to acquire one Adapt IT share for a purchase consideration of US$0.36 to be settled by the delivery of 0.9 Huge Group shares, which is commonly referred to as the swap ratio,” Huge Group said in a statement after markets closed.

“Adapt IT shareholders have seen over a 240% increase in the value of their shares since 28 September last year, when their shares touched a 52-week low of US$0.08”

“The business strategy of Adapt IT, which explicitly targets increasing annuity revenue from software-related products and services, is aligned to the business strategies of Huge Group’s existing operating companies to grow annuity revenue from products and services related to connectivity”

Duarte da Silva – Chairman, Huge Group

Huge Group said Adapt IT shareholders can tender some rather than all their shares and no minimum acceptance level has been set.

“Owning 100%, or absolute control, is not critical in this instance,” said Huge Group chief operating officer Andy Openshaw.

“Therefore, for the time being, we don’t want to be involved in an offer with unnecessary hurdles, thereby diminishing our ability to succeed.”

Herbst added that Huge Group will accept “any shareholder tendering part or all their shares”.

“The largest shareholder in Adapt IT holds just over 10% and if 20% of the Adapt IT shareholders tender half their shares in this offer, we will be pleased. We might even become the single largest shareholder; it will give us influence and possibly participation at a board level,” he added.

A combined group would have close to US$131.7 million in revenue and operating profit of about US$21.9 million.

Huge Group chairman Duarte da Silva said “The business strategy of Adapt IT, which explicitly targets increasing annuity revenue from software-related products and services, is aligned to the business strategies of Huge Group’s existing operating companies to grow annuity revenue from products and services related to connectivity.”

“There is a compelling story. The markets in which Adapt IT and Huge Group operate are similar and the economies of a larger company that can both withstand greater challenges and exploit expansive opportunities because of size and scale is appealing,” said Da Silva. 

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