MYOB Group Limited (ASX: MYO) is an accounting software provider which provide assistance to small and medium enterprise (SME) businesses through accounting, technpayroll, tax, and other business management solutions. Recently the company received an offer of $2.2 billion from the US-based Private equity giant KKR to fully acquire the company and to make the market share of MYOB larger than the cloud accounting leader- Xero. KKR recently acquired a 17.7 percent stake in MYOB from Bain Capital as announced earlier on 8 October 2018. Bain Capital sold 103,951,106 shares at a price of A$3.15 per share to an affiliate of KKR & Co. L.P. After this acquisition, KKR currently holds a total economic interest of 19.9% in MYOB.
MYOB continues to play catch-up to one of the cloud accounting leaders- Xero, and to help MYOB more, KKR is offering $3.70 a share which is higher than MYOB’s $3.65 issue price when it was relisted on ASX in the year 2015. Xero ltd is having around 1.38 million subscribers around the globe including 884,000 locally whereas MYOB is only having around 492,000 online subscribers in Australia and New Zealand.
If MYOB Group accepts the proposal and KKR fully acquired the MYOB Group, the challenge for KKR would be to find new ways to increase the company’s business as the company is looking for return and it can’t get much return from MYOB’s existing services, hence the company might look to add-on services such as financial advice or even business loans through its ownership of non-bank lender Pepper Group.
The unsolicited proposal which is received by MYOB Group from KKR for acquiring remaining shares is subjected to several conditions which include execution of definitive transaction implementation documentation on terms acceptable to KKR which includes the unanimous recommendation of the MYOB's Board of Directors, break fee and conduct of business provisions, Customary exclusivity and Customary conditions precedent such as no material adverse change, no prescribed occurrences and court and shareholders’ approval. The Board of the MYOB have started accessing the offer of KKR and it will inform the market if anything relevant comes up. As of now, the shareholders of MYOB group don’t have to take any action in relation to the Proposal and there is no certainty that the offer will be accepted.
In the first half of 2018, MYOB group witnessed a strong financial and operational performance as the online subscribers of the company increased to 492,000. The total revenue of the company uplifted by 7% to $218 million in 1HFY18 over the prior corresponding period. However, due to the impact of the price led migration campaign in 2H17 the organic revenue is lower than prior years. The Statutory EBITDA increased by 1 percent compared to last year to $88 million and the underlying EBITDA of the company increased by 3 percent to $93 million. MYOB Group is expecting that the underlying EBITDA margin will be around 42 to 44 percent in FY18 and the company expects a free cash flow of greater than $100 million in FY18. MYOB Group’s board announced an interim distribution of 5.75 cents per share for first half of FY 2018. In the past six months, the share price of the company increased by 15.64% as on 8 October 2018. MYO’s shares traded at $3.545 with a market capitalization of circa $2.1 billion as on 9 October 2018 (AEST 4:00 PM).
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