Private equity investor Potentia Capital Management’s ardent pursuit of Tyro Payments finally produced a positive response last week, when the Tyro board agreed to give Potentia a four-week period of due diligence.
Potentia, which is leading a consortium that includes HarbourVest Partners, MLC Investments Ltd and the Construction and Building Unions Superannuation Fund, first approached Tyro in September last year with an unsolicited, non-binding and indicative proposal that valued the company at A$1.27 a share.
Tyro rejected the offer as opportunistic. Throughout 2020 and 2021, Tyro shares traded in a range between $3 and $4 a share but last year have fell to a low of 60 cents in June before recovering to around $1.40 at the end of the year.
Potentia came back with a revised bid of $1.60 a share and the parties entered into “extensive” discussion. The talks ended in December with the Tyro board saying the revised offer also significantly undervalued the company.
Tyro was also in talks with Westpac about a bid but Westpac walked away.
In last week’s statement, the Tyro board said: “Following discussions between Tyro’s advisers and Potentia’s advisers, and following further consideration and consultation with its external advisers, the Tyro board yesterday offered to provide Potentia with a four-week period of due diligence to enable Potentia to develop a significantly improved proposal and confirm the necessary funding commitments attached to any possible future offer.”
Meanwhile, Tyro is keen to show the market that it can make a profit. Last year it cut staff numbers and increased merchant service fees in a bid to meet its goal of generating free cash flow by the end of the current financial year.
It reported a loss $29.6 million for the year to June 2022, following a loss of $29.8 million the previous year. It has not made a profit in the past five years.
Net cash outflow from operating activities, excluding loans and deposits, was $9 million, compared with outflow of $10.9 million in 2020/21.
The transaction value processed by Tyro rose 34 per cent to $34.2 billion and merchant numbers grew 10 per cent to 63,770. It is Australia’s fifth largest merchant acquirer by terminal numbers.
Potentia is led by Andrew Gray, who has previously worked with Archer Capital and US technology buyout firm Francisco Partners, and Tim Reed, who was chief executive of MYOB.
Some of its investments include MYOB, education software company Education Horizons, mine planning software company Micomine, payroll software company Ascender, and a payment terminal software and gateway services company Linkly.
Potentia said in its initial proposal that it has the relevant experience with tech companies to drive a successful business transformation at Tyro.