The Iress Ltd (ASX: IRE) share price has sunk in morning trade after an agreement was unable to be reached with potential acquirer EQT Fund Management.
Shares in Iress are currently trading for $12.05, down 11% for the day.
IRE share price
What was announced?
Iress announced that despite granting an extra 10 days of due diligence, both parties have been unable to agree on a transaction.
As a result, both sides have walked away from any potential deal.
While Iress previously signalled to the market that there was no certainty a deal would be reached, this is a blow for shareholders who have seen the Iress share price go largely nowhere for five years.
What did management say?
Iress remains upbeat about its future.
Management reiterated its goal of doubling profits by 2025 as a result of industry tailwinds and growth investments.
Moreover, management confirmed its profit guidance of $164-$168 million. However, it noted $4-5 million in one-off costs relating to the failed takeover.
Chairman Roger Sharp said:
“The announcement today in no way impacts our strategy to accelerate growth and returns to shareholders, as detailed in our announcement of 29 July 2021 and presented at our investor strategy day.
EQT reiterated its interest in Iress, however, could not justify rising its bid:
“During our work we have been able to confirm that Iress is an impressive, technology-focused business with strong market share and a very loyal customer base driven by its market-leading software solutions. We have not come across any red flags during our due diligence but were not able to sufficiently confirm our investment hypothesis. We wish management and the company well and have every confidence Iress will continue to be a leader in its field.”
What did EQT originally offer?
EQT initially offered $14.80 per share to acquire Iress back in June. However, this was declined by the board.
Then in July, EQT came back to the table with an offer range of $15.30 to $15.50 per share.
This offer was also declined. However, Iress met EQT halfway by providing access to its books for EQT to deliver a more acceptable offer.
What next for the Iress share price?
Expect the Iress share price to trend lower for the time being, while the market reprices the business without the takeover bid.
In summary, EQT could not justify raising its bid despite Iress’s growth ambitions.
It looks like management is confident it can deliver on its 2025 goal and expects EQT to pay a premium for that growth.
In EQT’s defence, Iress has delivered next to no profit growth over the past five years. Execution is a risk and EQT offered a price that reflected that.
It’s now incumbent on management Iress to prove EQT wrong, and deliver on its targets.
