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Given CVO's price decline, it wouldn't surprise me if it's being looked at right now with a potential suitor wondering whether they could sneak in and snap it up for a fireside sale price of around $10.00 per share. GLTA June 11, 2024
Copperleaf Technologies Inc A quicker-than-expected end of the CPLF story
Our view: Copperleaf has entered into a definitive agreement to be acquired by Industrial and Financial Systems ("IFS AB") for $12.00/share in cash. While the takeout price appears fair and equates to an 18% premium to yesterday's close (66% above the 90-day VWAP), we believe Canadian public investors lose out on a compelling small cap software growth story. We increase our price target to $12.00 (in line with deal price) from $10.00 and reduce our rating to Sector Perform.
Key points:
• IFS AB to acquire Copperleaf for $12.00/share. Copperleaf announced that it has signed a definitive agreement to be acquired by Industrial and Financial Systems ("IFS AB"). The takeout price is $12.00 cash per share, which equates to an 18% premium to yesterday’s close and a 66% premium to the 90-day VWAP. The deal is expected to close Q3 and has support from insiders representing 33.3% of Copperleaf's shares.
Takeout price is well above Copperleaf's historical trading average. The takeout equates to 7.2x NTM EV/S, which is slightly below data indexing, planning, and optimization peers at 7.7x and above Canadian SaaS peers at 5.1x. Copperleaf has averaged 3.1x NTM EV/S (1.2-5.7x range) over the past 2 years. In regard to Canadian SaaS precedents, the takeout multiple is above Q4 at 2.3x NTM EV/S and below Magnet at 10x NTM EV/ S. However, the takeout price is below Copperleaf's IPO price of $15.00.
Good likelihood of the acquisition being completed. The transaction must be approved by two-thirds of shareholders and the majority of Copperleaf's minority shareholders. We believe the acquisition has a good likelihood of proceeding, considering: 1) the takeout valuation is well above Copperleaf's historical average; 2) unanimous support from the board; 3) potential revenue synergies from the combination with IFS; and 4) the all-cash consideration, which is not subject to a financing condition.
Takeout comes just as momentum is accelerating. Copperleaf's takeout comes just as the company is seeing accelerating momentum, with ARR growth of >30% Y/Y for two consecutive quarters and improved visibility to profitability. We believe Copperleaf is well positioned to sustain growth as the company executes against its large market opportunity.
Another bittersweet end for a Canadian small cap software stock. Copperleaf adds to the growing trend of takeouts in the Canadian small cap software space, which includes Magnet (Apr 2023) and Q4 (Feb 2024). As we noted in our Feb 2023 report, Canadian small cap tech has entered a period of consolidation. Within our coverage, we believe that Coveo (TSX: CVO) and D2L (TSX: DTOL) are potential takeout candidates.
Moving to Sector Perform, price target from $10.00 to $12.00. Our updated $12.00 price target reflects the definitive agreement with IFS to acquire Copperleaf at $12.00/share. Given the current implied upside to our price target, we are moving our rating from Outperform to Sector Perform.
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