TD Topicus.com Inc.
(TOI-V) C$122.00
Announces Special Dividend; No Lack of M&A Opportunities
Event
Yesterday, after market close, Topicus unexpectedly announced a €1.54/share
Special Dividend, to be paid on March 28, 2024.
Impact: POSITIVE
Special Dividend does not signal a lack of M&A opportunities. We understand
that the decision to pay Special Dividend reflects Topicus' growing cash balance
(€179mm exiting F2023, up from €137mm exiting F2022, and €75mm exiting 2021),
partly due to the slowdown in its M&A activity, and its strategy to optimize its capital
structure. In particular, the leadership team is comfortable using debt to increase
shareholder returns, while also looking to benefit from the interest tax shield.
We believe Topicus may not initially need its credit facility to fund the Special Dividend
(~€200mm in total), given its cash at the end of F2023, and Q1 typically being a
seasonally strong quarter from an FCF perspective, as Topicus receives upfront
payment for most of its annual maintenance contracts. However, we believe Topicus
will need to rely on its credit facility later in F2024 should M&A activity pick up (it did
in Q1/F24; details here) and Topicus spends all of its FCF on M&A (vs. just 65% in
F2023). Should Topicus spend 100% of its FCF on M&A this year, we forecast that
leverage will still stay below 1x.
Recall, Topicus' parent Constellation Software paid a US$20/share Special Dividend
in April 2019, as it was unable to find adequate acquisitions that met its criteria/hurdle
rate, and decided to return the excess cash to its shareholders. By contrast, Topicus'
management indicated that the Special Dividend is not due to a lack of acquisition
opportunities.
Details. Topicus Coperatief (Coop), in which Topicus has ~63% ownership interest
(with the remainder owned by Joday and Ijssel), will pay a Special Dividend of €1.54
per ordinary unit to its shareholders.
Consequently, Topicus will receive €127.6mm of the Coop dividend. Topicus has in
turn elected to distribute this dividend to its shareholders, with €1.54 per share to be
paid to all holders of its subordinate voting shares and super voting share as of the
close on March 15, 2024, with the payment to be made on March 28, 2024.