Canadian telecommunications company Telus (NYSE: TU) made a $1.16 billion conditional non-binding indicative offer for artificial intelligence (AI) data technology company Appen (ASX: APX) on 26 May but withdrew it later the same day.
Telus had proposed acquiring all the shares in Appen at $9.50 cash. Appen has a market capitalisation of around $789 million.
Appen announced the Telus approach following media reports. The company said its board had carefully considered the indicative proposal and had sought advice from its financial advisers Barrenjoey Capital and Atlas Technology as well as its legal adviser Allens.
The company said its board was in discussions with Telus to seek an improved offer and had offered to provide limited business and financial information, subject to Telus agreeing to enter into a confidentiality and standstill agreement.
In a second announcement, Appen said: “This afternoon, Telus informed us that they were revoking their indicative proposal. No reasons were given. No confidential information was provided to Telus.”
Appen said it had been involved in negotiations with Telus and had reached agreement on the form of a non-disclosure agreement which it had expected to be “executed by Telus imminently”.
It is possible Telus’ withdrawal was strategic and it will make a new bid at a time of its choosing.
There would be synergies in Telus acquiring Appen. Last year Telus acquired Appen’s smaller rival Lionbridge for $C1.2 billion ($1.32 billion). Lionbridge was acquired at an EBITDA multiple in the range 16-20x while the indicative offer for Appen was only around 11x.
Appen, which was a private equity investee of Anacacia Capital before it listed in January 2015, claims a global market leading position in the AI data lifecycle sector through its annotation technology platform and its ability to crowd-source data from more than a million skilled annotators globally.
As at 30 April, Appen’s year-to-date revenue was lower than last year but the company said that with orders in hand for delivery added in the figure was around $US297 million, up 14% compared to the same time last year. The company expected first-half 2022 financial year EBITDA to be materially lower than the prior corresponding period because of lower than expected revenue and also reflecting continuing investment in developing its team and technology.
The Telus offer Sent Appen’s share price up nearly 28% from $6.39 to $8.17. Withdrawal of the offer sent the shares back down to close at $6.49.
Disclosure: The writer holds shares in Appen.
Image: Appen claims global leadership in its market sector.