Pushpay in trading halt amid takeover talk

Pushpay's software is used for church donations. Photo / Chris Keall

Pushpay Holdings has entered a trading halt today pending an announcement from the dual-listed software company.

Earlier this month, Pushpay halted trading of its shares to confirm speculation it received a takeover offer from a group of shareholders, without giving any details, saying it was weighing up whether it was in the best interests of all shareholders.

At the time it was being reported BGH Capital, which has a 20 per cent stake in Pushpay, was thought to have made a revised bid worth more than $1.2 billion. At today's price of $1.19, Pushpay is valued at $1.14b. Pushpay said today's halt will last until it makes an announcement, or trading opens on Monday.

In May - when shares were at $1.41 - the company said it was at an early stage of dealing with unsolicited takeover approaches but had not entered into any agreements, including with a private equity firm that's launching a bid with another existing shareholder.

That followed an earlier announcement when it said it had received unsolicited, non-binding and conditional expressions of interest or approaches from third parties looking to acquire the company. The board appointed Goldman Sachs to assist as financial adviser.

Since April, it had received additional interest from multiple parties, Pushpay said in May.

Although it did not name members of the consortium in its trading update late yesterday, in May Pushpay confirmed it had received interest from BGH and Sixth Street - although it also noted pointedly that Sixth Street also had wiggle room to terminate its arrangement with BGH and support another a bid by another party.

A local shareholder has also been building its stake. On September 22, ACC filed that it had increased its Pushpay holding from 5 to 6 per cent.

Why buyers could pay a big premium

BGH's investment vehicle, Oceania Trust, and Sixth Street's entities together own 20.3 per cent of Pushpay. New Zealand law generally prevents groups from building a stake above the 20 per cent threshold without making a takeover bid.

In an April 27 research note, Jarden analyst Guy Hooper said while data was scarce in the sector, recent transactions - including a November deal that saw New York-based investment firm Reverence Capital Partners take a majority investment in church management software provider Ministry Brands - had occurred at an average multiple of 6.2x sales, implying that Pushpay could be valued at up to $2b in a takeover - or roughly a $400m premium on its then market cap, even allowing for this afternoon's 13 per cent jump.

BGH Capital is an Australian private equity company with links to NZ. All three co-founders, Robin Bishop, Ben Gray, and Simon Harle, worked for investment teams that spanned the Tasman before starting the firm.

BGH Capital Fund II closed in February 2022 with A$3.6 billion (NZ$3.95b) committed. The firm said this makes it the largest active private equity fund focused on Australia and NZ.

Pushpay CEO Molly Matthews. Photo / File

It bought NZX-listed dental care business Abano Healthcare for $117m in 2020.

Sixth Street is headquartered in San Francisco but bills itself as a global investment firm with US$50b (NZ$77.4b) in assets under management. It has also invested in household names such as Airbnb and Spotify.

The firm bought a 17 per cent stake in the company when early investors, the Huljich family, sold in March last year for $320 million.

In May Pushpay reported annual operating earnings of US$62.4 million for the year to March 31 - in line with tightened guidance - but forecast lower underlying earnings of US$56m to US$61m for FY2023.

Looking ahead to the 2023 financial year, Pushpay said it expects "double-digit" revenue growth of between 10 per cent and 15 per cent, and underlying earnings to be between US$56m and US$61m.

The company also gave an upbeat assessment of the future, saying it expects to have US$10b transacted through its platform in 2024 and more than 20,000 customers by the end of the 2025 financial year.

Following the result, Jarden's Hooper said the result was broadly in line with expectations.

"While this appears negative at first read, the key difference appears to be the level of investment spend rather than underlying operations," Hooper said.

"The company also provided medium-term outlook commentary and FY24 targets, which appear upbeat and ahead of Jarden's estimate," Hooper added.

Shifting IP

The Kiwi-American company also said in May that it plans a restructure to shift its intellectual property from its New Zealand subsidiary to its US subsidiary - although it has some IRD hurdles to jump through first.

"Over the past few years, with over 98 per cent of the group's operating revenues coming from the US, there has been a progressive shift in the location of the group's management and support functions from New Zealand to the US," the company said.

The shift in focus toward the US had required Pushpay to review its transfer pricing, the firm said. Transfer pricing - or which country costs are booked in - affects tax and has been a hot topic between Inland Revenue and tech firms that operate in more than one country.

There will be a non-cash transaction between Pushpay's NZ and US operations to seal the deal. There will be "no impact on the employment or impact of staff".

Pushpay has 564 staff, with around two-thirds in the US and the balance in NZ.

Today, Pushpay's head of investor relations told the Herald, "We still plan on an internal sale of our IP to our US subsidiary" but there was no update on timing.