In our December 2020 quarterly report, having just received a bid for WPP AUNZ (WPP), we discussed other investments in the Forager Australian Shares Fund that may draw the attention of acquirers. Fund administrator Mainstream (MAI) was one we described as ‘more valuable in the hands of an acquirer’.
And so it was that Mainstream received a takeover bid from global administration group Vistra in early March. We’d like to think that a little prodding from Forager helped set the business on the current path.
In early 2020, before COVID-19 sent investors back to school for their virology degrees, the Forager team sat down with the board of Mainstream. The Fund had been a long term supporter of the company, holding the shares since listing in late 2015.
And we continued to see that the business’s value was not being appreciated by the stock market.
The title of the presentation that day was “opportunity to deliver significant shareholder wealth”. A clearer strategy, clearly communicated, would draw the attention of stock market investors. And a higher share price would force potential acquirers to pay more when it finally came time to realise the full value of the business in a sale. Since then, the Fund has seen the value of its investment in Mainstream more than double.
The Vistra bid came in at $1.20 per share, a skinny 12% premium to the pre-bid price. Not much of a premium in the usual scheme of takeovers. Not much at all when considering the highly recurring nature of Mainstream’s revenue, strategically important domestic business and plenty of growth opportunities.
The bid featured a clause rarely used in takeovers. A ‘go shop’ clause allows a target more flexibility in seeking a higher bid from a different party. Mainstream had until midnight on 11 April to seek a higher bid from other parties under this clause. Global behemoth SS&C (NASDAQ:SSNC) came to the party with a $2 per share bid, a stunning 67% premium on the Vistra offer.
Mainstream’s share price rise and subsequent bid is another case of value being unlocked among the Fund’s investments.
This is an excerpt from the March 2021 Quarterly Report.
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Forager Funds is a boutique fund manager specialising in a value investing approach. We offer an ASX listed Australian Shares Fund as well as an International Shares Fund both aimed at delivering returns for long term investors.