Montreal-based mdf commerce inc. MDF-T may not be going private quietly.
Since private equity company Kohlberg Kravis Roberts & Co. LP offered to pay $255-million in cash for the provider of online procurement platforms on March 11, several shareholders have come out against the deal. While none of the dissenting investors are among mdf’s largest shareholders, all of them say the $5.80-per-share offer price is too low.
“It is totally inadequate,” Stephen Takacsy, chief executive officer of Lester Asset Management, said in an interview. “MDF is an industry leader in e-procurement and is worth at least eight dollars per share.”
Lester owns nearly one million mdf shares – equating to a roughly 2-per-cent ownership stake – and is one of three shareholders to contact The Globe and Mail as of Thursday afternoon to voice opposition to the deal. Epic Capital Management, which owns 500,000 mdf shares, and Alan Pasnik, a private investor who owns 50,000 mdf shares, also called the price inadequate.
“The KKR offer is significantly undervaluing the company,” Epic founding partner David Fawcett said in an interview.
Mdf has been a fixture of the Quebec technology sector for decades, having first gone public in 2000 as Mediagrif Interactive Technologies Inc. before taking on its current moniker in 2020. During the 2010s, the company was considered a high-growth opportunity, buying digital assets from legacy media businesses and expanding aggressively into the U.S. market.
Its Toronto Stock Exchange-listed shares traded above $15 apiece for more than five years from late 2011 through mid-2017 and returned to those levels during the tech stock boom of 2021. However, mdf stock has consistently traded below $5 per share since early 2022.
The KKR offer has support from the entire mdf board of directors as well as major shareholder Long Path Partners, who collectively own 12.4 per cent of the company’s shares. Yet two of the company’s largest shareholders have yet to take a position on the proposed transaction.
Investissement Québec and the Fonds de solidarité FTQ together own roughly 25 per cent of mdf. IQ spokesperson Catherine Salvail and FTQ spokesperson Patrick McQuilken both said via e-mail that the KKR offer was still being analyzed.
“They could block the deal if they want to,” Lester’s Mr. Takacsy said of IQ and FTQ. “And together they should be able to negotiate a better price for all shareholders.”
In a Feb. 14 conference call with analysts to discuss mdf’s third-quarter results, chief executive officer Luc Filiatreault said the company’s quarterly revenue was $30.2-million, with 82.2 per cent of that total being recurring.
More than 6,500 government agencies across North America now use mdf procurement software. The company’s e-Procurement platform has grown from less than 40 per cent of total revenues in 2019 to nearly 70 per cent today.
Applying a valuation metric of four times revenue from the procurement business alone translates to $7.49 per share, according to Mr. Takacsy’s estimates. Adding revenue from other mdf businesses brings his calculations to $8.38 per share, which would value the company at slightly more than $368-million.
Analysts, meanwhile, appear unconvinced a higher price will be forthcoming. In a March 12 note to clients, Cormark Securities analyst Jesse Pytlak said the KKR offer was “full and fair.”
“Although mdf’s largest shareholders (Fonds de Solidarité FTQ, Investissement Quebec) have not signalled support for the transaction publicly, we do not have any reason to believe they would disapprove of the proposed transaction,” Mr. Pytlak said.
At least 67 per cent of mdf shareholders must approve the deal before it can be completed. Company spokesperson Brigitte Guay told The Globe that a date for the shareholder meeting has yet to be determined. The March 11 announcement of the deal said it was expected to close before the end of June, 2024.
Jameson Berkow