FREE

Entersoft | Corporate action catalyzes value crystallization; move to a Hold

Lower rating to Hold on valuation – Recent corporate action has catalyzed a faster - than our expectations - rerating of the stock, with the shares up 14% since the Olympia bid was first reported by the press. With the stock trading very close to our PT and at the Olympia bid level, the story has largely run its course, so we lower our rating to a Hold on valuation grounds.

Heading for mandatory tender offer… – Entersoft’s main shareholders reached on March 2nd, 2024, an agreement for the sale of a 53.73% stake to a consortium comprising Olympia Group and Rucio Investments S.a.r.l. The agreed purchase price was stated at €8 per share, corresponding to a 1-yr fwd EV/EBITDA of c15.8x, on our numbers. Since then, Olympia has been increasing its stake, with Entersoft announcing yesterday that Olympia’s affiliate Verdalite Limited now holds 33.58% of its share capital. As a result, the consortium seems to control 87.3% of Entersoft and is set to submit a mandatory tender offer.

… and potential squeeze-out – If, after the acceptance period for the takeover bid has ended, the bidder has acquired at least 90% of Entersoft’s voting rights, it may invoke a special squeeze-out right under the Takeover Bid Law to buy out minority shareholders. This legal provision allows the bidder to compel the target company's minority shareholders to sell their shares at a fair price. This right to squeeze out minority shareholders is exercisable within three months following the bid's acceptance period. The compensation offered to minority shareholders must be at least equivalent to the offer made during the takeover bid.

Valuation – We believe that corporate activity in the software sector was a natural outcome driven by the ongoing demand for digitization. The offer price aligns with our 1-year price target for Entersoft, providing an opportunity for selling investors to capitalize on their investment at this point. Our valuation on Entersoft is based on a DCF (8.9% WACC) and yields a 12m PT of €8.20 per share, effectively valuing the group at c16x 2024e EV/EBITDA, just above the agreed acquisition price. This is largely in sync with the current valuation of the broad EU software peer group and is indicative, in our view, of the quality of the business and the solid prospects for the domestic enterprise software market.