ELMO Software confirms $550m takeover talks have ceased

Cloud computing company ELMO Software (ASX: ELO) has confirmed exploratory takeover talks with a US-based specialist investment firm, which valued the business at more than double its recent value of $271 million, have collapsed.

The Sydney-based software-as-a-service (SaaS) business was in confidential, non-binding discussions over a change of control proposal. The undisclosed other party was prepared to pay $6.10 per share – significantly higher than yesterday's closing price of $3.01.

After announcing the discussions had since concluded, the ELO share price followed the rest of the market downwards by 4.32 per cent to $2.88. This is minor compared to the 35 per cent drop since the start of the year, which is consistent with tech stocks across global markets.

The takeover discussions indicate capital-intensive private equity companies are on the hunt for bargains in a distressed tech market. 

Founded in 2002, ELMO Software is a cloud-based HR, expense management and rostering software provider run by co-founder and CEO Danny Lessem, which consists of several brands, including PeoplePulse, Pivot, HROnboard, Vocam, Webexpenses and BreatheHR.

With a presence in Australia, New Zealand and the UK, the group reported annualised recurring revenue (ARR) of $98.3 million during its most recent half-year results in February, an increase of 35 per cent compared to 1H21.

After releasing its half-yearly results, Lessem confirmed ELMO was looking to continue expanding the business and drive growth through module, segment and geographic expansion.

Press reports had suggested ELMO was in talks with the Silicon Valley-based technology-focused investment firm Accel-KKR, with talks collapsing after the potential investor had been brought through a round of preliminary due diligence.

ELMO has declined to comment any further on the takeover but has confirmed it is continuing to explore other options that maximise shareholder value.