Takeovers to come part 2

The first post on this topic generated good traffic and feedback, so here are some more names to add to your “Takeover watch” list:

Belzberg Technologies (BLZ:TSX)

– $16MM in cash, 2006 earnings >$9MM (including tax recovery), about 12x trailing EBITDA; they are in a “strategic review” process, but the stock is off 30% or so as investors appear to be tired of waiting….

Datamirror (DMC:TSX)

– in this case, the takeover (read: going private) has been going on for many quarters now, as management has been using surplus company cash to buy back outstanding shares, which serves to increase the stake that the key existing shareholders own (assuming that they didn’t tender). Two million shares were retired in just one year, representing about 25% of the total shares outstanding as of January 2006! Trading at less than 15x trailing EPS (if you believe last quarter was sustainable), which isn’t high; last quarter’s operating income was US$2.5MM. US$16MM in net cash, means the current EV/EBITDA multiple is less than 9x at a C$17.75 share price. I’d give you the rest of the figures but SEDAR filings only produce error messages. As with Financial Models (formerly FMC:TSX), why be public if you don’t want to access to public markets?

Emergis (EME:TSX)

– the business has turned around, and the stability of the cash flows will appeal to both strategic and private equity (see recently proposed US$29 billion privatization of First Data {FDC:NASDAQ} by KKR at 11.9x 2008E EBITDA, for example). Growth can still come from the electronic health record space, which is a great blue sky opportunity for Emergis; $300MM market opportunity in Ontario alone, for example, according to Scotia Capital’s analyst. At current prices it is trading at a 2008E EV/EBITDA multiple of over 10x (based on EBITDA growing to $50MM from $35MM in 2006), so there is still a bit of room left perhaps. About $100MM in net cash doesn’t hurt.

MKS (MKX:TSX)

– the M&A market for application lifecycle firms has been robust for years, with multiples of between 3x and 6x being paid for both private and public names. With US$50 million in revenue, and a market cap of US$74 million (at C$1.71/share) the stock is ripe for an M&A deal. But with management (disclosure: CEO is on our advisory council) owning a controlling stake, the only deals can be of a friendly type…which makes getting a satisfactory price all the more crucial. Maybe not this year, but it only a matter of time.

To remind: these are not recommendations to acquire or trade securities.

MRM
(disclosure – I own MKS)