Softchoice shareholders should take the deal, ATB says

A proposed buyout is a fair one for shareholders of Softchoice (Softchoice Stock Quote, Chart, News, Analysts, Financials TSX:SFTC).

So says ATB Capital analyst Martin Toner, who in a research update to clients December 31, lowered his price target on the stock from $26.00 to $24.50 and changed his rating to “Tender” from “Outperform”.

On December 31, Softchoice announced that it had agreed to a buyout from WorldWide Technology at $24.50 per share.

“We are excited to join WWT,” CEO Andrew Caprara said. “Its scale and global reach, customer base of large organizations and industry-leading infrastructure solutions are a perfect complement to our software and cloud-focused solutions, our Canadian presence, and our strength in the North American mid-market. We also share similar Great Place to Work certified organizational cultures, demonstrating an aligned passion for our people. I believe WWT is the ideal partner for our customers and employees and I’m excited about our future as a combined firm.”

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The analyst summarized the development and explained the reasoning behind his target and ratings changes.

“Before market open on December 31, Softchoice announced that the Company has entered into an agreement to be acquired by World Wide Technology Holding Co. LLC (Private, NR) at $24.50 per share in an all-cash transaction, which values the Company at an enterprise value of C$1.8bn. This represents a premium of ~14% relative to the closing price on December 30th, and an LTM EV/EBITDA multiple of ~13.2x,” he wrote. “Birch Hill Equity Partners and officers of the Company own ~51.3% of the outstanding shares of Softchoice and have agreed to support and to vote all shares in favour of the Transaction. The acquisition is expected to close in “late Q1 or early Q2 2025”, contingent on i) approval of ~66.6% of shareholder votes at a special meeting of shareholders to be held in March 2025, ii) a simple majority of votes cast by shareholders (excluding shares held by senior officers) and iii) regulatory approvals. While we see Softchoice as a stable business with inherent operating leverage and growth potential, particularly in Software and Cloud, the offer price of $24.50 per share approaches our $26.00 PT, we recommend that investors tender their shares at the price offered. We lower our PT from $26.00 to $24.50 and change our rating from Outperform to Tender.”