Industrial Alliance Securities analyst Al Nagaraj says investors bidding Softchoice (TSX:SO) above yesterday’s proposed buyout price might be a tad optimistic.
Yesterday, Softchoice announced its board had unanimously approved the sale of the company to Birch Hill Capital Partners for $20 per share, a number that values the company at approximately $412-million.
Nagaraj says a competing bid from another private equity player is fairly unlikely without the support of the company’s senior management. It is his opinion that shareholders tender their shares, and in a research update to clients today, he gave his reasons why.
Nagaraj, who initiated coverage of Softchoice last year when the stock was trading at $11.74 a share, says management is a key reason for Softchoice’s exceptional performance. “It seems to us,” he says, “that management has strongly committed to the deal and that the chances of a strategic buyer taking the company through a hostile bid are fairly low.”
And while the dramatic slowdown in PC sales does not affect Softchoice severely, any unexpected slowdown in IT services can have a real impact on Softchoice’s profitability and share price in the short term if Birch Hill bid were to not go through, he says.
Nagaraj this morning increased his target price on Softchoice to $20 from $19, based on the takeover offer.
Toronto-based IT player Softchoice, which was founded in 1989, boasts more than 14,000 small and medium-sized business, enterprise and public sector customers across Canada and the United States. CEO David MacDonald, who joined the company in 2001 after an eighteen year career at Xerox, helped transform the company from a software direct marketer to one of North America’s largest providers of technology solutions and services.