Just no stopping the bids

Anyone who thought that the high level of tech M&A amongst the quoted (main and AIM) tech stocks that we saw in Q1 was a ‘one off’ and largely inspired by the changes in CGT, which took effect from 6th Apr 08, might need to think again. The M&A train has kept steaming in Q2.

The latest is IBS who announced that it has received approaches, which were at an early stage, from third parties which may or may not lead to an offer.

IBS provides products and services to the UK local government and social housing sectors with four main product sets: OpenHousing, OpenFinancials, OpenRevenues and OpenContractor.

Until 2007, IBS had performed strongly with double-digit growth and good positive cashflow.. This was reflected in the share price. However, in Jan 08, IBS put out what was effectively a profits warning which caused the share price to slump from 165p to 111p. Indeed, IBS had hit 200p in July 07 so they were close to joining Holway’s infamous 50% Club.

Latest results show PBT up 6% at £7.6m on revenues also up 6% at £19.8m; generating £6.3m operating cash to achieve £12.7m in nett cash at the 31st Dec 07 year end.. IBS warned of a ‘tightening’ in the local government marketplace and had experienced “some slowing in Q4”.

As a result of the bid announcement, IBS shares rose to 158p – close to where they stood before the profits warning.

IBS comes hot on the heels of:

• Mediasurface (see my piece Mediasurface soars on bid approach)
• Sci Entertainment (the Lara Croft people) bid approach revealed today as from Infogames
• Netstore had already said that "early stage discussions are continuing with third parties which may or may not lead to an offer ". Their share price rose 10% yesterday so maybe details are imminent.
• Clinphone getting a bid approach from Parexel
• Avnet’s €101m bid for Horizon (hardware distribution)
• Bid discussions at nCipher (see my piece nCipher receives bid approach
• Angle (quoted tech investor (see my piece Angle gets another offer)
  

Then, of course, there was Microgen’s bid approach to Scisys which was rejected. Microgen yesterday notified Scisys that it is not intending to revise its proposal and confirmed that it has no present intention of making an offer. This means that it cannot make another bid for six months (unless certain conditions apply). Microgen shares shot up by 11% to 51p on the news - perhaps on relief that this rather illogical coupling would not now proceed. Microgen, of course, could also make a profit on the shares it bought.Microgen bought 3.2m Scisys shares at 32p each on 3 April and almost half a million more the following week at 36.5p, taking its stake to 3.67m shares, or nearly 13% of the company. Microgen would be showing a paper profit of c£325K on yesterday’s SciSys closing price of 41.5p.

So NINE UK IT bids in four weeks. Hardly a slowdown! Indeed, I think that current market conditions will boost consolidation with the small to mid-sized quoted sector being particularly vulnerable (or lucky, depending on your viewpoint!)