Azure Healthcare (AZV) has announced this morning it has failed to reach an agreement with the party who recently proposed a conditional takeover offer.
The announcement lacked details in relation to who it was and what price.
The company has more than enough on its plate trying to keep up with customer demand, and hence they will be happy to shift their focus back towards its growth strategy.
The board is obligated to pursue any potential offer that may be in shareholder interests. However, given the company’s outlook and early traction in North America, it would also be easy to argue that a takeover is about one to two years too early to maximise shareholder value.
A US-based company would be able to justify the largest premium, given the company’s strong positioning to roll out its clinical workflow solutions in the region. Further evidence of this position was displayed by the company announcing $US5 million in recent orders across North America. Given the forecast gross margin of 55-60%, the new orders will have a material impact on the bottom line result.
In regards to the due diligence, if the party is a current competitor of Azure’s then there may have been issues with disclosure of sensitive information. Specifically, AZV has significant IP in regards to its product/service offering, its customers and contract details. In our view it would be unlikely to disclose this information to a competitor without having the certainty of an offer at a large premium.
Generally, small software-based companies are very exposed to large competitors with less capital constraints who can move into their space with a more advanced service offering. There are a few key factors that mitigate much of this risk for AZV: It has been providing the related Nurse Call Hardware for nearly 30 years, and has a very strong branding reputation of satisfying its growing customer list of more than 8000 Healthcare providers. In the US, they also have a couple of years lead time for the related approvals that a new entrant would need. Hence, a large software-based company attempting to enter the market would be more likely to partner or takeover AZV rather than trying to dislodge them from the market.
Our last recommendation on Azure was on April 30, which you can find here.