Converge Technology shareholders should take the deal, Ventum says

An offer to take Converge Technology Solutions (Converge Technology Solutions Stock Quote, Chart, News, Analysts, Financials TSX:CTS). private is a fair one for shareholders, says Ventum Capital Markets analyst Rob Goff.

On February 7, Converge announced it had entered into an agreement with Florida-based HIG Capital to be acquired for $5.50 per share.

“Converge is proud to begin a new chapter alongside H.I.G. Capital,” CEO Greg Berard said. “This partnership not only ensures meaningful value for our shareholders but also lays the foundation to enhance how we serve our customers. As technology continues to reshape industries worldwide, delivering comprehensive and forward-thinking solutions is vital to helping our clients succeed. We’re excited to continue leading the way as a transformative force in the IT industry.”

Goff summarized the development.

“Management indicated that they anticipate the deal to close in mid to late April, subject to customary approvals,” he wrote. “Notably, with today’s introduction of HSR business anti-competition and filing requirement rules in the US, the arrangement will be filed prior to the deadline of the new rule implementation. Therefore, the acquisition will be grandfathered under the previous framework and not subject to a longer review process, providing confidence in a swifter deal close. We are moving our rating to Tender and aligning our PT with the takeover offer at C$5.50 per share with our prior 12-month PT at C$6.00.”

The analyst thinks CTS will post EBITDA of $154.3-million on revenue of $2.52-billion in fiscal 2024. He expects those numbers to be EBITDA of $158.9-million on a topline of $2.51-billion in fiscal 2025.

“Our Tender rating assigns limited deal risk associated with the offer,” Goff concluded. “Management noted that H.I.G. represented the highest offer in the review process. While not a parameter within the review, CTS noted that it had received cash bids. While we ascribe a low probability to a competing bid, the potential does exist where a public peer with higher-valued shares could entertain a stock and cash offer. Our revised PT of $5.50/shr reflects forward EV/ adjusted EBITDA multiples of 7.7x and 7.5x our 2024/2025 estimates (excluding leases).”