VersaPay shareholders should take the Great Hill deal, Haywood says

Toronto-based VersaPay, a cloud-based invoice and payments business which offers its ARC SaaS platform, announced the proposed deal on Friday, which would see VPY shareholders receive cash consideration of $2.70 per share for a total of approximately $126 million on a fully diluted basis.

The deal, which is not subject to a financing condition, represented a 47.5 per cent premium to the closing price on December 12 and a 64.5 per cent premium to the volume weighted average price (VWAP) of VPY over the last 30 trading days. (All figures in Canadian dollars unless where noted otherwise.)

“We are very pleased to be able to recommend this transaction to our shareholders, employees and customers,” said Art Mesher, Chairman of VersaPay, in a press release. “With their deep knowledge of our industry and focus on supporting growth companies, Great Hill is uniquely positioned to understand our business and its long term potential, and help the Company to achieve that potential.”

Rosenberg said that along with the attractive offer price, Boston-based Great Hill’s experience in fintech make it a good fit as it has a portfolio of companies including six other fintech names, some of which operate in adjacent verticals to VersaPay.

“Following a few soft growth quarters, VersaPay is now showing signs of improvement with a strong backlog, ARR growth and new customer wins. The Company has built a robust product however achieving scale requires capital. The offer is a good fit for the Company and at an attractive price to shareholders,” wrote Rosenberg.

Of VersaPay, Rosenberg said that the ARC platform addresses a “major pain-point in a very large and underserved accounts receivable market,” where the A/R market is in excess of US$5 billion with 88 per cent of firms still relying on paper invoices.

“The ARC platform helps customers solve a visible pain-point and is a sticky product. The ARC platform is scalable with high gross margins and high recurring revenue,” Rosenberg wrote.

Looking at VersaPay’s financials, Rosenberg thinks the company will generate calendar 2019 revenue and adjusted EBITDA of $8.8 million and negative $9.6 million, respectively, and calendar 2020 revenue and adjusted EBITDA of $13.9 million and negative $4.9 million, respectively.

The analyst has noted that VPY’s board is unanimously recommending that shareholders vote in favour of the transaction and that directors and senior officers, who represent about 3.7 per cent of VPY shares, have also entered into agreements to vote in favour of the deal. A special meeting is expected in February to finalize the vote.

Rosenberg has changed his recommendation for VPY from “Buy” to “Tender” and raising his target price from $2.30 per share to $2.70 per share, which at press time represented a projected return of 1.5 per cent.