Tyro’s second takeover approach tumbles at eleventh hour

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Mike Cannon-Brookes-backed fintech Tyro Payments has had its second takeover approach in six months collapse in the final stages, and its shares plunge on the news.

The payments company had been engaging with Potentia Capital Management for almost nine months about a possible buyout, but on Monday announced that discussions had ceased after Tyro had granted its private equity suitor access to its books.

Tyro’s shares tanked on the news, slumping 24¢, or 15.6 per cent, to $1.29 by 3pm AEST.

Potentia has ended its talks to buy Tyro Payments after having done due diligence.Credit: Internet

Tyro chair Fiona Pak-Poy said the company had worked in good faith with Potentia to come to an agreement, but the long and drawn-out discussions had ended after the private equity firm said it did not intend to proceed with a deal.

“We have appreciated Potentia’s engagement and are disappointed that they were ultimately unable to deliver a revised offer,” Pak-Poy said.

Tyro, the fifth-largest provider of eftpos services, had been in play since September, when Potentia made a $1.27-a-share non-binding offer to buy the fintech.

Westpac appeared to be joining the contest in October, entering talks about a potential buyout to strengthen its small business offering, but in December it said it had decided not to proceed after undertaking due diligence on Tyro.

Potentia raised its non-binding offer to $1.60 a share the same month, but Tyro’s board said that offer remained too low.

Tyro’s share price was as high as $4.28 in September 2021, but tanked to 61¢ in July last year when its chief executive quit to join The Star Entertainment Group. Its share price has also suffered as rising interest rates blunted many growth technology companies vulnerable to rising borrowing costs.

Investor expectations had been building for Potentia’s buyout to go through, with Tyro’s last remaining major shareholder, Mike Cannon-Brookes, saying his investment company Grok Ventures would sell its 12.5 per cent stake to Potentia.

Sources close to Potentia said that while the firm was pleased with the level of engagement from Tyro, there were problems found in its due diligence material as well as a challenging macroeconomic environment that meant the two companies were ultimately unable to reach an agreement on price.

In its most recent trading update, Tyro revised down the value of transactions done on its platform, and said it expected a softening due to a slowdown in consumer discretionary spending.

It’s understood the talks also involved extensive conversations about Tyro’s banking licence, with sources close to Tyro saying it had emerged that the transfer of the licence would take longer than Potentia had initially modelled for. They also said concerns about macroeconomic conditions had contributed to Potentia’s withdrawal at the eleventh hour.

Morningstar equity analyst Shaun Ler said while slowing economic growth may have influenced the price that companies were willing to pay for Tyro, it wasn’t a major factor affecting the business.

“The economy has been slowing down for a while,” Ler said. “But Tyro has made very good progress on many fronts, including cutting costs, to achieve profitability.”

Ler is confident Tyro can increase its profits and grow organically, but he said that its share price would struggle for some time and potential suitors would be treading cautiously.

“Tyro’s share price will take time back because of how global technology stocks are going at the moment,” he said. “There’ll be a fair bit of shareholder pressure to continue soliciting interest from buyers, but since one of the largest banks, then a private equity company, both fell off, others will be more selective in scrutinising the business and wanting to see evidence of growth.”

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