Paul Talacko gives us the lowdown on the takeover of his favourite software share.
Take-overs are both good things and bad things for investors. On the one hand, they are a way to "out" the value of the share, enabling you to realise gains. On the other, a take-over usually means that the share is snatched from you at less than what you think it's really worth.
A company I wrote about in July, Planit Holdings
(LSE: PLN)
, is being taken over. Is it a good or bad deal for those of us who own the shares?
Planit makes computer-aided design software for the woodworking industry amongst other things. The company is small with a market capitalisation of only £26 million and it has almost no broker coverage. This means it's overlooked by many institutional investors. Also, the 'software' sector is unfashionable at the moment. These factors have made the company cheap with the share price stuck stubbornly at around 25p. Even after the announcement that bid talks had begun, the share price didn't move.
Another important point is that the directors have large shareholdings. This can be a good thing because it means the directors have a vested interest in ensuring that the company prospers. But it also means that the directors have first dibs when it comes to a take-over. In the case of Planit, it is, indeed, a management buy-out. They are offering 29p per share.
Adjusted earnings per share for Planit is 2.9p. So, the purchasers are getting the company for only 10 times earnings. This is low. Software companies, especially good ones like Planit, should be trading on 15 times earnings, in my opinion. This would suggest a price 44p.
Another way to value the company is to use EV/EBITDA. Assuming debt of £6 million and EBITDA of £4.6 million. EV/EBITDA is 6.9. A fairer EV/EBITDA of 8 would suggest a price of 34p.
In addition, I see no reason why Planit should not continue growing. It is one of the survivors of an industry that has seen massive upheaval since the dot.com crash. Also, it is one sector of the IT industry that is relatively immune from competition, because they produce unique and mission-critical software. Of course, there are other firms in this space and slowly, but sure CAD/CAM software is turning into something called Product Lifecycle Management. To me, though, this suggests that Planit would be an ideal acquisition for one of the other companies.
Therefore I'd be happier with a price of somewhere between 34p and 45p.
Although I think the management of Planit are buying the company cheaply, I'll be accepting the offer and voting for the scheme of arrangement. The large management shareholding makes it almost impossible to oppose, and anyway, I have better investments to find.
Paul owns shares in Planit Holdings.
