Fintech fight adds fillip to M&A Down Under

Tyro Payments

18/10/2022 22:01

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are his own.)
    By Antony Currie
       MELBOURNE, Oct 19 (Reuters Breakingviews) - Dealmaking
Down Under has been full of drama this year – but somewhat
lacking in consummation. KKR  KKR.N  gave up on its A$20 billion
($13 billion) pursuit of Ramsay Health Care  RHC.AX , BHP
 BHP.AX  is leaving its A$8.3 billion offer for OZ Minerals
 OZL.AX  hanging after being rebuffed, and Dye & Durham  DND.TO 
is making ever-shrinking attempts to buy some of Link
Administration  LNK.AX . All in, $71 billion-worth of deals has
been announced so far this year, 60% lower than the same period
in 2021, per Dealogic. Now, though, a potentially fierce fintech
fight could add a bit of much-needed juice.
    Big-four lender Westpac  WBC.AX  confirmed on Tuesday that
it’s in talks to buy Tyro Payments  TYR.AX , which specialises
in processing card transactions in the healthcare and
hospitality sectors. Other bidders have been circling. A buyout
consortium led by Potentia Capital had its A$657 million
approach – a 27% premium - rejected last month. Now Tyro says
“several parties” are interested, which has pushed its market
value to some A$820 million.
    Potentia has some advantages: It has the support of Tyro’s
top shareholder, Atlassian  TEAM.O  co-Chief Executive Mike
Cannon-Brookes’ investment vehicle, Grok, which has agreed to
sell its 12.5% stake to the buyout group. Potentia also has some
deep-pocketed partners, including pension funds Cbus and MLC
Investments. It’ll need them. At the current price, financing
just a third of the bid with debt would require some hefty
leverage of almost 9 times the A$31 million of EBITDA the target
hopes to generate this financial year.
    Even so, a greater ability to cut costs should hand Westpac
a financial advantage. Assume it could remove A$50 million or so
in annual expenses, or a third of what Tyro expects to incur –
the rule of thumb for bank mergers. Taxed and capitalised, those
are worth A$340 million, giving the lender run by Peter King the
wherewithal to cover what, at the current market value, is
already a chunky 60% premium to Tyro’s undisturbed stock price.
One wrinkle may be the 15% of the merchant processor’s
transaction volume which comes from a budding relationship with
Bendigo and Adelaide Bank  BEN.AX ; that business may suffer if
rival Westpac emerges victorious.
    All this sets the scene for resurrecting last year’s spate
of combative corporate wooing, even before taking other
potential players into account. It might not rise to the 19-bid
frenzy berry grower Vitalharvest Freehold Trust elicited.
Bankers, though, will be content just to get a deal done.
    Follow @AntonyMCurrie on Twitter
    CONTEXT NEWS 
    Westpac on Oct. 18 said it was in preliminary talks to buy
merchant processor Tyro Payments. On the same day, Tyro said it
had “received approaches from several parties expressing
interest” in buying the company, including Westpac.
    On Sept. 8 Tyro rejected an offer of A$1.27 a share from a
buyout group led by Potentia Capital valuing the company’s
equity at A$657 million ($414 million). Other members of the
consortium include HarbourVest, MLC Investments and
superannuation fund Cbus.
    Tyro shares closed at A$1.59 a share on Oct. 18.
 (Editing by Robyn Mak, Pranav Kiran and Amanda Gomez)
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