The ELMO Software Ltd (ASX: ELO) share price is rocketing higher on Wednesday morning.
At the time of writing, the HR and payroll platform provider's shares are up 40% to $4.62.
Why is the Elmo share price rocketing higher?
Investors have been bidding the Elmo share price higher today after the company announced the receipt of a recommendable takeover offer.
According to the release, Elmo has entered in a scheme implementation deed (SID) with K1 Investment Management. This SID is proposing a scheme of arrangement that will see Elmo shareholders receive $4.85 cash per share.
Management notes that this represents an "attractive" premium of 100% to the last trading price of Elmo shares on 12 October. This is the final trading day prior to the company announcing that it had received approaches expressing takeover interest.
Based on this offer price, it values Elmo's equity at approximately $486 million, which is the equivalent of 4.5x annualised recurring revenue (ARR).
Shareholder recommendation
The Elmo independent board committee (IBC) unanimously recommends that shareholders vote in favour of the scheme. This is in the absence of a superior proposal and subject to the independent expert concluding that it is in the best interests of shareholders.
The company also advised that two of its largest shareholders, which hold or control 23.4% of its shares outstanding, have confirmed that they intend to vote in favour of the scheme, subject to the same conditions listed above.
The transaction will be subject to Foreign Investment Review Board (FIRB) approval and other customary conditions.
Elmo's chairman, Barry Lewin, commented:
The ELMO Independent Board Committee has carefully considered the proposal and believes the offer price of $4.85 cash per share represents compelling value for ELMO shareholders. Whilst ELMO has achieved considerable success to date in Australia/New Zealand and the United Kingdom, the IBC has balanced this against the macroeconomic and execution risks in achieving future plans and has unanimously concluded that the Scheme is a compelling option which realises attractive value for our shareholders.
This won't be K1 Investment Management's first Australian tech investment. The Los Angeles-based investment firm has previously invested in the likes of simPRO, Cyara, AroFlo, and RosterLive.
