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From ADVFN (Maarleck):
Stroke of genius?
These two clauses really stand out, one of benefit to each of the companies’s share holders.
For Tern holders (clause A)
“Irrespective of the date on which completion of the Acquisition falls, Pires Shareholders will not be entitled to receive any dividend declared, made or paid by Tern for the benefit of the Tern Shareholders by reference to a
record date falling on or before the date on which the Acquisition is completed
For Pires holders (clause B)
“If any dividend or other distribution or return of value is proposed, declared, made, paid or becomes payable in respect of Pires Shares on or after the date of this Announcement and prior to the Acquisition becoming effective, Tern will have the right to reduce the value of the consideration payable for each Pires Share by up to the amount per Pires Share of such dividend, distribution or return of value.
Here’s the way it would play.
Pires sells off the investments that Tern have no desire to own and sees no benefit in, all proceeds from such sales go directly to Pires holders. As detailed in the clause, this reduces the value Tern has to pay for the Pires shares, getting rid of most of the portfolio, cherry picking the unique features AS wants and keeping the gold that is the SVV investments, we could get Pires for practically nothing as the Pires share cost to us we be so drastically reduced.
TERN then realises the sale of DA for a vast sum, with (as per clause A) an immediate dividend of say 70% of all proceeds going to existing shareholders only.
The remaining funds in the enlarged Tern company would increase the share price significantly, making all Tern and indeed Pires shareholders very happy and wealthy.
The new and improved Tern would have a much larger, stronger portfolio, cash rich and a new board that would possibly change the way things are done and a way for AS to finally retire)
People need to think this through a bit more. The knee jerk reaction was understandable but for me this could actually work out quite amazing for everyone.
How will we know a sale will happen? We know that such an event will eventually happen because it is part of Tern’s business model to sell their share in the investment companies. Considering that some of the initial investments were made several years ago, the chances are higher than ever. In fact, some of the investments surpassed the given exit timeframes on Tern’s website. Tern’s CEO, Al Sisto, has said during the Capital Markets Day in May 2021 that they were speaking to many exit opportunities every month. Furthermore, some investment companies have been undergoing tremendous growth and have established large successful partnerships. In particular, I want to highlight investee Device Authority.
Device Authority’s IoT Security Automation Platform has been recognised as a market leader by several third-party technology research companies (ABI Research and Quadrant Solutions), beating several multi-billion-dollar companies. Joe Biden has released an Executive Order on Cybersecurity in May 2021, telling all companies that they must improve their cybersecurity efforts. With over 10 billion IoT devices globally, most of them unsupervised and unsecured, Device Authority is planning to secure a large market section. Recently, their solution has been selected to participate in an IoT Standards Project which will eventually serve as a best-practice recommendation to US federal, state, local, and civilian agencies.
So, what now? After an investment, Tern’s goal is to sell their share of the company for “multiples”, as described on their website. So, however long ago the investment was made or regardless of the other advantages the investor can give the investee, the value on paper is reflected by the latest investment round (NAV). However, Tern will want to sell their share of the company for enterprise value. The enterprise value of Tern’s companies is (most likely) much higher than their investment value; as long as revenues keep rising, along with other factors such as employee count, it can safely be assumed that the enterprise value of a private company is higher than its investment value. Therefore, only when an investor in a private company sells their share of the company or when a private company decides to go public (IPO) will the public know the enterprise value of this private company.
If the enterprise value of the companies is increasing, then surely the share price of Tern should also be increasing, right? Not quite. As such a sale has not happened yet in the history of the company, the public is sceptical. Furthermore, Tern states on their annual reports that the current value of the investees is equal to their NAV, which totals to £32.4m (or £0.092 per share), so the public must determine the enterprise value themselves (which is extremely difficult and which the public is terrible at). Currently, even after many years after the initial investment, Tern is valued at £50m (or £0.14 per share). So, Tern is valued at a mere 56% above their NAV. With the CEO talking of “handsome multiples”, “many multiples”, and “strong exit multiples”, it can safely be assumed that he expects to sale Tern’s share of the investment companies for multiples of the investment value. These many multiples are not currently represented in Terns market value, as its P/B is a mere 1.56.
After a sale has happened, Tern has access to much more capital than it has now. Currently, Tern relies on raising money in the public market by issuing additional shares which causes dilution for existing shareholders. When Tern has their own cash from their investment company proceeds (after a sale), investors will no longer worry about additional shares being issued. This alone will create share price appreciation. Furthermore, while still unknown, the wealth distribution following a sale is most likely to profit shareholders tremendously. Tern will reinvest most of their proceeds in other companies. In addition, it can safely be assumed that Tern will also pay out a special dividend for its shareholders and perhaps establish a share repurchase program. Lastly, immediately after such a sale the public will realise that the other companies are also probably worth more than their investment value and value them according to their (speculated) enterprise value, as it will be the first sale in Tern’s history.
Tern PLC is a venture capital company with five investee companies in its portfolio. Due to the nature of the company, there is a lot of undisclosed information which has created a lot of unrealised value. In this investment idea I will describe the critical information that should be known about Tern PLC and attempt to shine light on the underlying value of Tern PLC’s investee companies. I am recommending Tern PLC as an excellent and long term buy to growth-oriented technology investors and to all value investors.
Tern’s portfolio consists of four private companies and one public company. The private companies – Device Authority, FundamentalVR, Konektio, and Talking Medicines – are not required to disclose financial information to the public. Since the market cannot investigate the financial statements of the majority of Tern’s investees, determining the enterprise value of Tern (and its investees) has been a challenge since the beginning of the Company. One can only speculate about the revenues of the investees. Tern does not release any exact revenue figures but instead releases the aggregate year-over-year revenue growth of the companies as a percentage in the annual reports which has been increasing steadily (58% in 2018, 27% in 2019, 18% in 2020. 47% in 2021). In addition, other important factors such as employee count have also been rising over the years. However, without concrete numbers it is still extremely difficult to determine the enterprise value of Tern’s holdings. If this critical financial information is lacking, what is the correct approach to valuing these companies?
Tern themselves value their investees based on their basic NAV, which reflects the value ascribed by the latest investee investment round. This value is determined by the company and by the investors that participate in that investment round. Notably, such value is variable to many factors. Ultimately, an investor can bring much more to the table than capital which could allow the investor to gain a higher percentage for less (compared to an investor who cannot provide such advantages).
Naturally, Tern’s investors want to know the value of the investee companies. There have been many questions why the companies do not release financial statements to support Tern share price and to support its shareholders. Two reasons have been pushed forward why it is important for these companies that these numbers stay private. First, it gives a company a competitive advantage when its competitors in the market are unknowing of their market share. Second, a company’s clients and partners often request a company to not disclose such numbers. One can only speculate why they would do this. Perhaps it is because these clients and partners also want to keep a competitive advantage over its own competitors. Draw your own conclusions on this one.
https://twitter.com/GeronimoWolf_/status/1504040295112974339
DA listed as an OVERALL LEADER of 2022 in the whole technology market amongst some of the biggest names out there! Read this whitepaper!
53.8% owned by Tern PLC…
https://go.abiresearch.com/lp-36-leading-technology-companies-to-know-in-2022
“The Directors believe they will be able to fund investments into the New SVV Fund from the Company's ongoing available resources.”
Considering Tern does not have ongoing revenue streams, this must indicate they plan to invest with the proceeds from future exits.
Together with this from last CMD:
Tern Capital markets day:
“We are actively, every month you know having conversations with many, many, potential exit opportunities.
With substantial increases in the SaaS revenues, as a measurement of the churn of the customer base etc and the multiples we are seeing right now are handsome and going up.”
Well done draft, I think you will be pleasantly surprised with your returns if you are patient enough to hold for a year.
Tern, as a VC< value their investees on their basic NAV, which reflects the value ascribed by the latest investee investment round. Enterprise value reflects what an investee is sold for. In IoT currently ranging from 50 to 500 times basic NAV. Tern has 5 amazing investees who have been in the portfolio for several years but the market still values them at NAV. A huge disconnect between investment value and enterprise value has been created over the years.
I am expecting one of the investees to be sold in the coming months, our first exit. After that, the market will realise that these investees should be valued far above their NAV. We will therefore witness share price appreciation after the first exit. In addition, all Tern holders should be rewarded with a handsome dividend.
Since you are investing in a portfolio company, it greatly reduces your risk. Device Authority (DA) alone makes up for Tern's market cap. DA was recently recognised as the market LEADER of the IoT Device Identity Lifecycle Management market for 2022 (https://www.linkedin.com/feed/update/urn:li:activity:6900548115066093568/). This market will be worth $8b annually in 2025. The question becomes, how much for the LEADER? I am guessing more than a mere $40m (Tern's mcap)...
Goodluck
Two huge partnerships and being recognised as THE LEADER in the IoT Device Identity Lifecycle Management market for 2022. How much for the leader of a market worth $8b in 2025? I’m guessing more than Tern’s current mcap
These are my assumptions and conclusions from today's RNS:
Device Authority's current valuation was derived from the amount invested by Venafi and their equity stake. DA's valuation given a 1.25M investment for 3.4% of the company, given they would buy 100% of the company, would turn out to be US$36.76M. Device Authority's current valuation is not equal to that of an Exit valuation. Of course, this largely depends on what a buyer would pay for DA.
Given that Venafi's investment was a strategic investment, I assume that Venafi entering the list of shareholders is also beneficial to Device Authority. While the proceeds of the investment are by no means meaningless, I believe that Venafi on board adds much more value to Device Authority than the proceeds of the investment. For instance, Venafi could help Device Authority get a lot more customers through their own customers.
Slightly hidden in the RNS but definitely not overlooked, the Class B and Class C shares no longer carry rights of the proceeds on a liquidity event. Before, Class B and Class C shares would be allowed up to 25% of the proceeds. My rough calculations showed that Tern PLC owns 7.7% of all Class B shares. Tern also held 58% of Class A shares. That means that previously, Tern would receive about 0.077 * 0.25 + 0.58 * 0.75 = ~43%. For the previous calculation the Class C shares, solely held by Darron Antill, will be ignored but adding them in the calculation only further dilutes Tern PLC's proceeds. After the change stated in today's RNS, Tern PLC's proceeds following an exit will be 54%.