Azure Healthcare Ltd (ASX:AZV) will be losing a key person, Nathan Buzza, who was responsible for overseeing the development of the software that is now revolutionising the business. As I previously pointed out, the fact that the company now offers software solutions - not just hardware - is central to the Azure Healthcare investment thesis. Indeed, it was only once Buzza (and founder Robert Grey) both rejoined the company that its fortunes turned around. At least the software has been fully developed, so to an extent, it makes sense that Mr Buzza is now leaving. Having said that, I don't think there is any reason why the company couldn't have put it on their website or issued a press release.

Azure Healthcare has recently announced that it received a non-binding takeover proposal from a party they did not name at a price they did not specify. As my friend Andrew Mudie speculated on the Motley Fool:

"Hills recently purchased Questek and Merlon; providers of nurse call systems and general health monitoring systems. The companies were significantly smaller than Azure and have inferior offerings (or so I’m led to believe) but are the type of platform that Hills plans on using to grow scale. Azure could well become a takeover target by Hills in time, especially if its US exposure becomes more significant."

Personally, I would have thought that it is more likely that there is an opportunistic buyer that is aware of the company because of the North American business, but the speculation is only important to the extent that there could be multiple buyers. If the nursecall system is going well, operating leverage could still send profits a lot higher, and it is quite possible that Pie Funds have slightly underestimated the value of the business. In any event, I have to say that if the share price rises above 41c, I'll probably sell some or all of my holding.

Interestingly, the share price rallied prior to the release of the takeover proposal and after the announcement shares traded as high as 41.5c. I believe any takeover offer below 38c would not be a serious bid, not least because Pie Funds mentioned in their excellent monthly newsletter that they think shares in the company are “worth 36c and possibly 40c in a takeover.” Personally, I think shareholders will be shortchanged if the company sells for anything less than 40c per share, but I would not buy at 36c or above.

The Author owns shares in Azure Healthcare. Nothing on this website is advice, ever. The purpose of this blog is to keep track of my decisions and invite feedback

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Comments

Michael M  5 years ago Reply
5 years ago Reply

Well done on this one. I was interested mid 20s but I was concerned about the lumpiness of the revenues and whether 1H 2014 could be replicated. Never bought a position. Seems timely that Nathan Buzza is leaving with this offer

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Claude Walker  5 years ago Reply
5 years ago Reply

Hi Michael,

Thanks for the comment. Yea, I was concerned about lumpiness too, although it seems that with their recent contract win in the US they should have strongish earnings right into FY 2015.

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