Guess which little ASX tech stock this billionaire is looking to acquire

The Aussie share market might soon be waving goodbye to this tech company.

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Key points

  • Constellation Software, and its billionaire founder, have lobbed a bid at a small ASX tech stock
  • Fleet management solutions provider Eroad has received a non-binding bid of $1.30 per share
  • The proposal follows Constellation Software buying up a 17.7% stake in Eroad

Today, one small ASX tech stock has found its way onto the radar of a Canadian billionaire. Shares in Eroad Ltd (ASX: ERD), a software provider for managing compliance and safety of vehicle fleets, are the subject of interest.

Prolific tech acquirer and operator Constellation Software Inc (TSX: CSU) has lobbed a non-binding indicative offer (NBIO) at Eroad via a wholly-owned subsidiary this morning. This follows earlier reports of the Canadian tech company, founded by billionaire Mark Leonard, buying up 17.7% of Eroad shares at NZ$1.30 apiece.

Before today, the Eroad share price sat at $0.705. The company's shares are up 47% over the past month, yet, they are still 54% worse than where they were a year ago. Eroad requested a trading halt before trading commenced today amid management's discussions.

Adding to its tech portfolio

Canadian software powerhouse Constellation Software may not immediately ring bells among Aussie investors. However, valued at approximately A$63.5 billion, the beastly business is on par with the likes of Wesfarmers Ltd (ASX: WES) and Woodside Energy Group Ltd (ASX: WDS).

The company has rewarded long-term shareholders handsomely since its 2006 listing. Constellation Software shares far exceed any benchmark, up 14,560% over their listed life. An achievement made possible through executing its mission to acquire, manage, and build market-leading software businesses.

Having acquired over 500 companies in its history, New Zealand fleet management solutions company Eroad has found its way onto the Canadian's acquisition conveyor belt.

According to a release, Brillian APAC Pty Ltd — part of Volaris group and a subsidiary of Constellation Software — purchased shares in the ASX tech stock on Wednesday. Brillian tallied up 20,025,091 shares in Eroad in total, giving it a 17.7% stake in the company.

Since then, Eroad has received an NBIO for 100% of the company at $1.30. The proposed price represents an 84.4% premium to its last traded price and values Eroad at a market capitalisation of $146.8 million.

For the last 12-month period, Eroad reported NZ$34.5 million cash outflow on NZ$174.9 million in revenue. Furthermore, the company held a net debt position of NZ$62.5 million at the end of March 2023.

What's next for this ASX tech stock?

Today's offer will now undergo the process of due diligence, negotiation, and consideration by Eroad's board. Notably, the release highlighted that the board will evaluate partnership options to drive further growth in its North American expansion.

The ASX tech stock may resume trading today following the proposal announcement.

Following the publication of this article, Eroad shares have since resumed trading on Thursday. At the time of writing, the Eroad share price is up 61.4% to $1.14 on the ASX.

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Constellation Software. The Motley Fool Australia has positions in and has recommended Wesfarmers. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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