Huge receives shareholder backing in Adapt IT buyout deal

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Huge Group CEO James Herbst and Adapt IT CEO Sbu Tshabalala.
Huge Group CEO James Herbst and Adapt IT CEO Sbu Tshabalala.

Huge Group is inching closer to taking control of JSE-listed software services firm Adapt IT, after receiving shareholder approvals of the proposed transaction.

The technology company made a shock takeover bid last week, offering a 33% premium on the Adapt IT shares.

The deal was conditional on Huge Group receiving shareholder approval in terms of section 9.20 of the JSE Listings Requirements and the Takeover Regulations Panel having issued a compliance certificate in relation to the offer.

In a note to shareholders today, the JSE-listed group says it has the green light to proceed with the deal.

“The Huge board has procured irrevocable undertakings from Huge shareholders holding 79.57% of the issued share capital, excluding treasury shares, of Huge to vote in favour of the resolutions necessary to implement the proposed transaction and the offer,” says the company.

“The Huge board expects that further information will be contained in the firm intention announcement which should be released as soon as reasonably possible after the date of this announcement.”

Huge Group, whose subsidiaries operate in the telecommunications, media, technology and software industries, is offering a swap ratio of 0.9 of a Huge share for every one Adapt IT share tendered.

The swap ratio is based on a reference price of 613c per Huge share and an implied price of 552c per Adapt IT share.

In response, Adapt IT, led by CEO Sbu Shabalala, last week warned shareholders to exercise caution when dealing in the company’s securities until a further announcement is made.

The Johannesburg-headquartered group provides specialised software and digitally-led business solutions to the education, manufacturing, financial services, energy, communications and hospitality sectors, and has a presence in Mauritius, Botswana, Ireland, Kenya, Australia and New Zealand.

The company derives almost three-quarters of its revenue from SA.

In its most recent financial results, Adapt IT reduced its net gearing to 43% from 66%, and all debt covenants were met by 30 June 2020, which is when the company’s financial year ended.

Dividends were withheld for the reporting period, with Adapt IT saying its board had prioritised the reduction of borrowing and has “remained prudent in preserving cash during these unprecedented times”.

In the 2020 financial year, cash generated from operations improved by 27% to R227 million, revenue increased by 3% to R1.5 billion, and earnings per share were up 13% to 57c.

Headline earnings per share were up 29% to 73c.

The group’s earnings before interest, tax, depreciation and amortisation improved by 9% to R250 million, compared to R230 million in 2019.

The takeover bid by Huge, which is led by James Herbst as CEO, comes on the back of a recent announcement that the company plans to list on the London Stock Exchange (LSE).

Huge announced it had decided to apply for admission of its shares on the LSE’s Alternative Investment Market as a secondary listing. Huge, however, said it would retain its primary listing on the JSE as well as A2X Stock Exchange.

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