Is this ASX small cap set for a bidding war?

This time around it’s Symbio (ASX: SYM) with an indicative proposal to acquire 100%  submitted last Friday (29 September) from Aussie Broadband (ASX: ABB).

As a refresher, Symbio provides communication services to software companies, telecom providers and enterprise customers globally. It is positioning itself as a disruptor of legacy physical networks with the mission to convert customers to cloud-based infrastructure and provide faster, easier ways to deliver communication services. The company is experiencing significant tailwinds following increased adoption of cloud-based telephone and remote conferencing communication.

On the other side of the transaction, Superloop (ASX: SLC) is a Brisbane-based telecommunications and internet service provider. It provides connectivity and services across three market segments: consumer, business, and wholesale. Superloop has invested in hard infrastructure assets, encompassing fibre optics, subsea cables, and fixed wireless, in addition to its software platforms.

Since the initial offer from Superloop, there have been multiple extensions of the due diligence period. It has since increased its offer from the initial bid valuing the company at $2.85 per share to $2.91 per share as of the 22nd of September. This had been a ‘Best and Final’ offer pending a superior proposal.

Step in, Aussie Broadband.

Who is Aussie Broadband?

Aussie Broadband is a telecommunications and technology company focused on providing a broad range of solutions to residential, business, enterprise and government customers. It’s most well-known as a fast-growing residential internet provider with best-in-class customer service. Aussie recently took out silver on our earnings season podium following a bumper result. Perhaps the move for Symbio was hidden in plain sight? The FY23 presentation noted:

“The group is focused on organic growth, but remains open should acquisition opportunities arise that align with our strategic objectives.”

What is the offer?

Late last Friday (29 September), Aussie submitted an indicative proposal to acquire 100% of Symbio. Under the arrangement Symbio shareholders would receive $2.36 in cash and 0.192 Aussie Broadband shares for each Symbio share held (equating to 75% Cash and 25% Scrip). This represents a higher cash component than Superloop’s current offer which is capped at a maximum of 60%. With an Aussie share price of $4.11 as at 28 September the offer values Symbio at $3.15 per share, an 8% premium on the current Superloop bid. As with the Superloop deal the proposal includes the potential for Symbio to pay a fully franked dividend to shareholders of up to $0.35 per share with franking credits of up to $0.15 per share. Aussie has now been granted three weeks to complete its due diligence process.

Why Superloop could counter bid again?

We believe there’s a high likelihood Superloop will make a higher offer to Symbio for several reasons:

• Symbio is Superloop’s largest customer having signed a 3 year $25m NBN aggregation deal in February 2021.

• Should Aussie Broadband acquire Symbio, they will absorb the contract upon its expiration in a year or two, leaving Superloop with a gap in earnings that needs to be filled.

• Achieving scale and relevance is crucial in the telco sector, and Superloop has the potential to become a significant company through future index inclusion.

• We estimate significant synergies for both companies if they acquire Symbio - at least $10 million based on our analysis.

M&A Activity Heats Up

The latest offer for Symbio adds to the flurry of acquisition activity in the ASX small cap space.

• We recently wrote about the takeover offer for allied healthcare company Healthia (ASX: HLA) here which saw an offer of $1.80 per share, a mammoth 84.6% premium to the company’s share price at the close on the previous day.

• Following our initial coverage of Cirrus Networks Holdings Limited (ASX: CNW), Atturra Limited (ASX: ATA) has since increased its offer for the business by 19% to 6.3 cents per share. The improved bid represents a 53.7% premium to the share price prior to the announcement.

• Count Limited (ASX: CUP) recently announced its intention to acquire Diverger Limited (ASX: DVR). If successful, Diverger shareholders will receive 1.38 Count ordinary shares plus $0.367 in cash, implying a value of $1.14 per Diverger ordinary share (based on a Count share price of $0.56).Diverger shareholders also have the option to elect to receive a greater proportion of shares or $1.10 per share in cash for their consideration mix, subject to scale-back. The deal values Diverger at $45.3 million.

As activity continues to ramp up it is evident the ASX small cap space is proving an attractive place to be.

Disclaimer: Aussie Broadband Ltd  and Symbio Holdings Ltd are currently held in TAMIM Portfolios.