Tyro says ‘no dice’ to undervalued & opportunistic private equity offer

By Market Index
Thu 08 Sep 22, 1:16pm (AEST)
Dice under water
Source: Unsplash

Key Points

  • Tyro’s share price was up a whopping 30% at noon
  • Tyro has rejected $1.27 per share takeover bid which equates to a 30% premium to its last close
  • Management believes the highly opportunistic bid is materially below its valuation

Shares in unloved Tyro (ASX: TYR), which has seen its share price tumble in the last year, staged a sizable rebound today following revelations that the point-of-sale payments business has snubbed an unsolicited takeover bid by a Sydney-based private equity group which management regarded as undercooked.

Heading into lunch, Tyro’s share price was up a whopping 30% after rejecting a $1.27 per share takeover bid by software and technology-focused venture capital firm Potentia Capital Management and a consortium comprising HarbourVest Partner, MLC Investments Limited and The Construction and Building Unions Superannuation Fund.

Cash or cash & scrip

Valued at $658m, Potentia’s offer equates to a 30% premium to its last close.

Shareholders were offered either 100% cash, or 50% cash and scrip in a privatised Tyro, subject to scale-back.

Today’s unsuccessful bid for Tyro follows a failed $400m crack at rival tech mid-cap Nitro Software (ASX: NTO) by the same suitor late August, after securing a 17% stake in the business.

Highly opportunistic

Tyro’s board took little time in echoing similar sentiment to its counterparts at Nitro in deeming the offer to be materially below its valuation of the business and below where the stock has traded at in the last 12 months.

In light of the current period of significant share market volatility and the cyclical weakness in global technology company valuations, both boards regard Potentia’s bids as highly opportunistic.

While several of Tyro’s Top 10 shareholders believe Potentia’s bid fundamentally undervalues the company, it’s understood Grok Ventures, the venture capital vehicle of Mike Cannon-Brookes, agreed it would vote its 12.5% stake in Tyro in favour of the bid subject to certain conditions.

For example, it’s understood Grok “cannot take any action under a competing proposal, unless that proposal has a value of $0.25 per share greater than the value of the most recent Potentia proposal”.

Private ownership

In its defence of its failed bid, Potentia argues that Tyro needs business transformation that ideally complements private ownership.

Based on its track record helping Australian software businesses scale, and the significant capital and resources, Potentia also claims it is uniquely placed - given its strong experience in B2B software and payments - to support Tyro’s organic and inorganic growth.


Tyro has guided to transaction value within the $40–42bn range.

Last week the fintech reported that August FY23 (year-to-date) transaction value rose 57% to $6.8bn.

Management is targeting free positive cash flow by the end of FY23, backed by a normalised gross profit range within $175–181m.

Tyro Payments share price over three months.


What brokers think

Tyro, which floated in 2019, has seen its shares slump 66% this year, in line with similar falls in valuations experienced by rival fintech businesses.

Consensus on Tyro is Hold.

Based on Morningstar’s fair value of $2.80 the stock appears to be undervalued.

Morningstar expects Tyro to grow transaction volume to approximately $100bn by FY32, representing a compound annual growth rate (CAGR) of 13% from $34bn in FY22.

Based on the five brokers covering Tyro (as reported on by FN Arena) the stock is currently trading with 22% upside to the target price of $1.50.

While Ord Minnett retains a Buy rating, Morgan Stanley moves to Equal-weight from Overweight after acknowledging its prior Overweight rating on Tyro was the wrong call.

Both brokers have a target price of $1.40.

UBS, which has the highest target price of $1.80, maintains a Buy rating after noting that management's guidance is pointing to operating leverage ahead of expectations.

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