Dye & Durham (TSE: DND) has once again made headlines regarding its planned takeover of Link Administration Holdings (AU: LNK). Yesterday, Link finally accepted DND’s acquisition offer. The purchase price is A$2.47 billion, or about C$2.21 billion when converted to Canadian Dollars. For reasons we outline later on, the deal could be viewed positively or negatively, depending on one’s perspective.
Link has agreed to receive A$4.81 per share plus a maximum of A$0.13 per share if Link’s Banking and Credit Management (BCM) business is sold and the proceeds are collected within one year of completing the deal. DND would want to sell Link Administration’s BCM business because it wouldn’t be a core part of its operations.
About Dye & Durham and Link Administration
Dye & Durham provides cloud-based business support services. It offers legal services such as due diligence, securities filings, litigation solutions, investigative services, and more.
Meanwhile, Link provides administration services to the financial services sector in Australia and the U.K., predominantly in the share registry and investment fund sectors.
The Deal That Keeps Evolving
Originally, DND offered A$5.50 per share for Link in December 2021, which Link accepted. However, other things have gotten in the way since then. Last month, the Australian Competition and Consumer Commission (ACCC) stated that it is extensively reviewing the transaction and will make a decision by September 8 of this year, meaning there’s a chance that the deal won’t go through.
Also, before the most recent A$4.81 per share offer, DND revised its takeover offer to A$4.30 per share last month due to deteriorating market conditions, but Link wasn’t interested in that offer.
This led DND to make another offer worth A$4.70 per share, which, again, didn’t get accepted by Link. Nonetheless, now that the two companies have finally agreed on a price again, it seems that the only things in the way now are the ACCC’s decision and shareholders’ votes on the acquisition.
Analyzing the Deal from Dye & Durham’s Perspective
In the original takeover announcement in December, DND claimed that it could realize C$125 million in synergies from the acquisition. The same announcement mentioned that the deal would help DND generate an extra A$1.2 billion in revenue and about A$257 million in EBITDA, helping it reach its target of C$1 billion in adjusted EBITDA.
While this sounds attractive, Link’s business could potentially be a drag on DND’s financial profile. Besides the high amount of debt the acquirer would have to take on to buy the company (the acquisition offer is almost twice the size of DND’s market cap), Link’s financial figures aren’t as good as DND’s.
While DND has a gross profit margin of about 87% and a very high EBITDA margin of 40.7%, Link has a gross margin of 44.7% and an EBITDA margin of 9.8%.
Also, Link’s margins have been declining over the past five years, suggesting that its operations are deteriorating. Because of this, DND’s margins would decline if the companies combined, potentially having a negative effect on its valuation multiple.
Wall Street’s Take on DND Stock
Turning to Wall Street, DND has a Strong Buy consensus rating based on three unanimous Buy ratings. The average Dye & Durham price target of C$46.67 implies 157.9% upside potential.
Conclusion: The Deal Has Its Positives and Negatives
It remains to be seen if the deal will go through. If Link truly does generate A$257 million in EBITDA for DND, then the deal may be suitable. However, its adjusted EBITDA figure of A$113 for the past 12 months suggests it has a long way to go to reach A$257 million.
Overall, the deal has its positives and negatives, but DND may be able to help Link become more efficient through its expertise, turning the negatives into positives. Meanwhile, Wall Street analysts remain bullish, suggesting high upside potential.
