Nearmap (ASX: NEA) is flying high after a takeover bid and FY22 results!

Nearmap (ASX: NEA) has now doubled since the bottom of the Tech Wreck in late June, driven by Monday’s takeover offer and buoyed further by its FY22 results. But is the deal certain to proceed? And what will happen if it doesn’t go through – does the company have a strong future? 

 

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Who is Nearmap? 

Nearmap is a geospatial analytics company, one of only a handful of its kind on the ASX. The company takes aerial images using planes (not drones) and compiles them into a catalogue of data and images that it charges fees to observe and use. 

 

What’s the difference between Nearmap and Google Maps?  

Nearmap’s catalogue is updated far more often, while still maintaining historical data to depict how areas have changed. Additionally, images can be meshed to form 3D or vertical images and they can be analysed using AI.  

The company’s primary customers are government and insurance entities that use Nearmap for several purposes, from determining land values for tax purposes or even disaster mitigation planning. Other customers include utilities, solar companies, architects and construction companies.  

 

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Nearmap has been trying to crack the American market 

Nearmap has a presence in four countries: Australia, New Zealand, Canada and the USA. It was founded in 2007 and since 2014 has expanded its presence in the USA. It has struggled in that market for some years, changing its market verticals and pricing strategy multiple times. The company also faced legal attacks from competitors and critical short-seller reports. 

 

Starting to get noticed 

Just prior to this week’s takeover offer, things were finally looking up – as we noted in our Stocks Down Under Article on 19 April. Nearmap has reached US$64.3m in Annual Contract Value (A$91.6m), which was several times the amount it was four years ago. It was about to release its HyperCamera3 (HC3), which would allow it to operate at higher altitudes.  

But shares reached levels not seen since November last year after the company revealed takeover interest out of the US. 

  

 

 

Nearmap gets a takeover bid 

On Monday 15 August, Nearmap revealed that San Francisco-based private equity firm Thoma Bravo had made a $2.10 per share takeover bid. The bid valued the company at just over $1bn and was priced at an 83% premium to where its shares were just prior to the announcement. In a twist of fate, Thoma Bravo tried to acquire competitor EagleView barely seven years ago but missed out. 

 

Thoma Bravo has done its homework 

Thoma Bravo’s bid was actually received last month and significant due diligence had been completed since then. Nearmap has entered a 7-day exclusivity period to try and help Thoma Bravo’s bid become a formal binding offer. Inevitably, part of this will involve digesting the company’s annual results, that were due on 17 August.  

Obviously now, there’s less chance of an Appen-like situation where a bid could easily evaporate. This is a bidder that has done significant due diligence and has deep pockets. However, it is still possible that the deal will fall through, which is why shares haven’t quite risen to the offer just yet. 

 

Is Nearmap a buy now? 

Often when companies receive takeover bids, their shares jump to match the bid, even if the company hasn’t yet accepted the offer. With Nearmap still at a discount to the bid, you might argue it is a buy right now. But shareholders should remember two points.  

First, as we already noted above, this is not a final offer – the final one could come in lower, although we think that is highly unlikely. 

Second, the deal might ultimately fall through, which would trigger a substantial share price drop. 

 

A bidding war could emerge 

On the flip side, another suitor might emerge. The granting of an exclusive due diligence period to Thoma Bravo following some weeks of due diligence suggests there may already be other interested parties. But a scenario of a takeover battle is not a certainty. 

Overall, we believe shareholders pondering whether or not to buy Nearmap right now should consider how the company would perform as a standalone entity in the absence of any offer.  

 

Nearmap forecast for growth 

Nearmap released its FY22 results this morning and reported ACV of $167.6m, up 31% on the prior corresponding period. Although group cash outflow was <$20m, this was a smaller outflow than the $30m guidance it had previously given. 

 

Solid growth expected in the next few years 

Although Nearmap has not given specific guidance for FY23, it has estimated it will reach positive free cash flow in FY24. Consensus estimates for revenue and EBITDA in FY23 are $178m and $35.7m respectively, up 24% and 105% from its FY22 results. Then in FY24, revenue and EBITDA are forecast to amount to $213.6m and $62.2m, marking 20% and 71% growth respectively.  

These figures look attractive, but remember that it is still negative on an EPS basis.  

On the other hand, its EV/EBITDA multiple for FY23 is 23.6x – which may seem on the expensive side. But EBITDA growth for FY23 is expected to be more than 4 times that multiple. We think that’s quite attractive still. 

We think Nearmap can continue to grow in the US market as it has in recent years, but for the next few days all investors will care about is what will be happening with the takeover bid.  

 

Does Nearmap have any lessons for other investors? 

If you think you missed the boat on Nearmap, is there anything to learn from the current scenario? We think if you’re a shareholder in another tech stock that has been heavily sold off this year, you may have the right to be hopeful that suitors could come knocking at your company’s door too.  

 

 

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Nearmap FAQs

• Is Nearmap a public company?

  Yes, Nearmap is listed on the ASX.

• Is Nearmap a good buy?

  Ultimately, no. We think its fundamentals look solid, but it appears that it will be taken over. If the proposed deal falls through, though, the share price will likely fall a lot.

• Is Nearmap better than Google Earth?

  Yes, for certain applications it is. This is because Nearmap’s catalogue is updated far more often, while still maintaining historical data to depict how areas have changed. Additionally, images can be meshed to form 3D or vertical images and they can be analysed using AI.