Take the deal, says Haywood Securities to Espial Group shareholders

Haywood Securities analyst Pardeep Sangha says that the shareholders of struggling stock Espial Group (Espial Group Stock Quote, Chart TSX:ESP) should take the newly announced deal offered by Enghouse Systems Limited. On Monday, the analyst updated his rating from “Buy” to “Tender” and while lowering his target price from $2.70 to $1.57.

Espial Group on Monday announced that it has entered into an agreement to be acquired by Enghouse Systems for an all-cash consideration of $1.57 per share, representing approximately $56.5 million in equity, with a break-fee of $2 million payable by Espial. The deal would give a premium of 39 per cent to the stock’s price as of last Friday and reportedly has the support of 31 per cent of shareholders including the Board and management.

Sangha remains bullish on TV and video platform provider Espial Group, despite the fact that the company is in a rapidly changing market and ESP has been transitioning its business model over the past two years, which has produced some volatility for it.

“We previously had a $2.70 target price and believe the transaction price undervalues Espial’s business,” says Sangha. “The company has been undergoing a transformation to a SaaS business model, which caused revenue to decline in CY18 but will result in higher recurring revenue and improved profitability over the long-term and the past two quarters have now been EBITDA positive.”

Nevertheless, Sangha supports the deal, saying it’s unlikely that Espial will receive a competing bid.

“The Company already has significant shareholder support for the transaction and given the break fee in place, as well as the ongoing transition, we believe there are limited potential alternative acquirers,” he writes.

Shareholders are expected to vote on the transaction at a meeting in May, with the deal expected to close in the second quarter of this year.