KEY POINTS:
Gamesmanship over the price required to take control of Software of Excellence is already under way, even though a formal offer is unlikely for at least another two weeks
Earlier this week, the Auckland-based dental records software firm said it was opening its books to a large international rival in advance of a potential takeover offer.
At the time, ABN Amro Craigs analyst Brett Orsler said a price up towards the $3 mark may be required to persuade shareholders, which include Co-Investor, an Australian investment manager part-owned by Contact Energy director Phil Pryke.
In a research note yesterday, Orsler lifted his target price to above $3.
Software of Excellence shares, which were trading at $2.15 shortly before the potential offer was announced on Monday, added to their gains this week to close up 4c at $2.76 yesterday.
Orsler values the company, which is the market leader in its field in New Zealand, Australia and the United Kingdom, at $2.60 a share on a discounted cashflow (DCF) basis.
However, he believed the potential buyer, an international medical records software company which has yet to be named, would have to pay significantly more.
He pointed to the earnings multiples recently paid for companies in the same sector and also said the DCF was based on conservative forecasts and did not take into account the potential value that could be added if the company made better use of its strong balance sheet. Software of Excellence is believed to have somewhere between $5 million and $7 million in cash.
Furthermore, the DCF valuation did not take into account any premium for control.
A source close to the potential bidder who this week indicated any offer was likely to be in the vicinity of $2.60 questioned ABN Amro's new valuation.
"The fundamental value of the business hasn't changed a jot in two days. The only thing that's changed is someone's said that they might be interested in buying the thing and all of a sudden they've managed to rationalise a whole lot of additional value in the business."
Should an offer be made, it will be considered by an independent directors committee who will also seek an independent expert's report.
