Blue Prism: rating of buyout target low for a reason

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Tired of London, if not of life, software group Blue Prism is quitting the stock market. The board has confirmed its recommendation for a £1bn takeover bid from US private equity group Vista.

Disgruntled shareholder Coast Capital thinks the price is too low and plans to vote against the deal. The activist fund is right about the price. But with no rival bid on the table, the Vista offer looks like the best bet for investors in this unloved business.

Shares in the automation software group have tracked sales growth lower. Before Vista’s bid, the shares were hovering close to four-year lows. Slowing growth at US-listed rival UiPath suggests Blue Prism’s market share losses have been limited. But UiPath’s New York listing means a higher rating and a significant cost of capital advantage. As a result, Blue Prism is set to cede more ground

Both groups provide automation software for back-office functions such as customer records. They are also both lossmaking at the ebitda level and require significant financing to grow.

UiPath raised $1.2bn in April this year by listing shares at a multiple of almost 40 times forward sales. They now trade at 25 times. It held almost $2bn of cash at the end of the first half, compared with Blue Prism’s £125m. UiPath’s sales growth is expected to be 43 per cent this year, more than double the expected pace at Blue Prism.

On those numbers, the six times forward revenues that Vista is offering, which includes a 35 per cent takeover premium, is still cheap. The discount widens against a group of tech peers with similar growth profiles to Blue Prism. These are trading at an average multiple of nine times forward revenues.

That is little comfort to shareholders unless a fresh bidder emerges. Rejecting the offer would put them at the mercy of an aggressive and well-funded rival. The price of their own shares would drift lower. The London market, it transpires, is just as tired of Blue Prism as Blue Prism is of it.

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