The Tyro Payments Ltd (ASX: TYR) share price is climbing above the takeover offer price today as the market weights up the prospect of a higher bid.
Morgan Stanley is one that reckons yesterday's takeover proposal from Potentia Capital will be a "catalyst for other strategic bidders to consider".
The Tyro share price is currently up 9.7% to $1.32. This is on top of the 27.9% surge on Thursday when the $1.27 a share takeover offer was announced.
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Why the Tyro share price could attract another bidder
If Morgan Stanley is right, it will validate the decision by Tyro's board to reject Potentia's offer as being too low.
The broker lists three reasons why another bidder for the payments services provider may emerge.
Firstly, there is a global trend of consolidation in Tyro's industry. With interest rates going up and capital getting more expensive, building scale to reach profitability is suddenly a more pressing priority.
Another reason is that large global players are taking advantage of the fall in share prices. This means would-be buyers won't have to pay as much to buy smaller and faster-growing ASX companies.
This leads to the third point. Tyro's share price is inexpensive to a potential suitor. Morgan Stanley noted that the ASX fintech is trading at two-to-three times enterprise value to gross profit (based on the broker's FY23 forecast). That's lower than other transactions in this space.
High price to play
But any competing bidder will have to cough up at least $1.52 if it wants Tyro's largest shareholder to switch horses.
Potentia has the backing of Grok, which owns 12.5% of Tyro's shares. Grok is the head trust owned by Atlassian Corporation's (NASDAQ: TEAM) co-founder Mike Cannon-Brooks.
It's hard to see how a competing bid can be successful without Grok's support.
Details on the initial takeover of Tyro
Potentia's offer allows shareholders the option of getting their payment in cash, half-cash and half-scrip in a privatised Tyro, or 100% scrip in the private company.
The offer is also subject to a few conditions, such as a six-week due diligence and getting regulatory approvals.
Potentia is leading a consortium that is behind the takeover bid for the Tyro share price. Other members of the group include HarbourVest Partners LLC, MLC Investments Limited and The Construction and Building Unions Superannuation Fund.
Tyro share price snapshot
Even with the excitement from the takeover offer, longer-term shareholders are likely to still be nursing a big loss.
The Tyro share price has crashed 65% over the past year while the All Ordinaries (ASX: XAO) has shed 7%.
Embattled shareholders will be keeping their fingers crossed that a higher bid will soon emerge.
