“Shareholders have options” Adapt IT’s Sbu Shabalala on the Volaris offer

On the BizNews Power Hour, Adapt IT founder and CEO Sbu Shabalala elaborates on what has been a blockbuster start to the year for the JSE-listed software business. First, James Herbst led the Huge Group made a scrip offer to buyout minorities at R5.52, however the company is yet to issue a circular to shareholders outlining further details. Earlier this week, Adapt IT released an announcement outlining that Canadian software group Volaris has made an all-cash offer at R6.50 to buyout at least 50% of shareholders. All possible transactions are subject to shareholder approval and it’ll be interesting to see what comes of this in the coming months. – Justin Rowe-Roberts

Sbu Shabalala on the Volaris offer: 

That’s why we were very interested in this particular transaction. And because it sets the base for shareholders that, we were last at R6.50 in November 2018, two and a half years ago. So should shareholders wish to exit, they have an exit price. So that is very important for our shareholders that have been under pressure over the last few years. But for management, we were never leaving the business. So the challenge was really the capitalisation of the business in order for us to capitalise for our future strategy. And this transaction promises to do that.

On the relationship with the Volaris Group: 

They’ve been around since even when we were rated much higher than what the market currently rates us. They approached us again in December 2020 and had just done a transaction similar to what they would like to propose to us, where management can stay in and we can create a vehicle for growth in the future without really losing the essence of what we’ve created. So they’ll come in as an investor and fund the growth of the business. But it’s a long-term strategy.

On whether the Volaris offer has anything to do with Huge Group’s hostile-bid: 

No, it isn’t. I guess we’ve always had a challenge with our capital structure. We took on too much debt and we’ve been paying it down. However, our investors have not had the funds to recapitalise the business further. And we know that, we went to the market and we all agreed we’re going to just run the business and ensure that we can pay down our debt in order for us to get some access to capital for investment. So that’s why we stopped acquisitions and and we will only resume them in the next six months. To the extent that we can find a strategic shareholder who’s willing to have an African presence, who’s willing to put in as much capital as we can deploy. So that’s something that we really can’t not look at.

On whether the intention is for Adapt IT to stay listed or unlisted:

There are options. So their preference is to have one listing. So Volaris is a CSI business and CSI is listed on the Canadian Stock Exchange. So to run a dual listing at this early stage when Adapt IT is still a small cap may not be necessary. To the extent that we can grow the business, we can always re-list it. But the intention really is that they want to delist the business. However, they are open, as you’ve seen the options in the announcement.

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