Q4 Inc. QFOR-T is being urged by one of its largest shareholders to keep its own publicly traded status rather than proceed with a buyout.
On Thursday, Finsight Group Inc. publicly opposed Q4′s sale to Sumeru Equity Partners as part of a $257-million deal that was first announced last month. Q4, which sells investor relations software to public companies, “should remain a standalone public company,” New York-based Finsight said in a letter to Q4′s board of directors.
Finsight, which owns roughly 5.6 per cent of Q4, said going private by selling to Silicon Valley-based Sumeru for $6.05 a share – barely half of the $12 a share Q4 was worth when it first went public in October, 2021 – “threatens to prematurely siphon the company’s future potential into the pockets of conflicted insiders.”
Investors holding 34 per cent of Q4 stock, including chief executive officer Darrell Heaps, have already agreed to roll over their shares as part of the deal, meaning they do not have to relinquish their equity in the company. That makes the transaction “potentially fraught with irreconcilable conflicts,” Finsight said, as minority shareholders would be “forced to accept the cash consideration.”
In an e-mailed statement, Mr. Heaps said “the transaction was entered into following an extensive process” and that a more detailed background will be included in documents being mailed to shareholders “early next week.” He declined to comment on Finsight’s conflict allegations.
At least two-thirds of Q4 shareholders must approve the Sumeru offer, including a majority of investors who aren’t rolling over their shares, in order for the deal to proceed. A special shareholder meeting has been set for Jan. 24, and Finsight said its 2.2 million shares represent roughly 8.5 per cent of those eligible to be cast at that meeting.
The deal is worth roughly 2.8 times Q4′s annual recurring revenue of roughly US$56-million, which Finsight calls “a demonstrably low multiple.” In a Nov. 13 note to clients, RBC Capital Markets analysts Maxim Matushansky and Paul Treiber said the multiple was below Q4′s Canadian software-as-a-service peers, which were generally at 4.5 times revenue.
“However, given Q4 has missed consensus sales estimates for six of the eight quarters since it has been public, a weakened IPO and macroeconomic environment, and the significant premium to the last trading price, we believe the acquisition is attractive and provides certainty to shareholders,” the pair told clients.
Q4 has also not traded above $6.05 a share since January, 2022, the RBC analysts said. The stock has remained below that threshold in the six weeks since the offer was announced.
However, Finsight claimed in its letter that Q4 “is at an inflection point following a successful restructuring process and is thus well positioned to thrive as a standalone public company.” It notes the company “went from burning approximately US$30-million in 2022″ to now being break-even.
“To be clear, we are not advocating for an incremental increase in the purchase price,” Finsight’s letter adds.
Jameson Berkow