Will INM kingmaker Dermot Desmond seek Datalex exit?

Belgo-Dutch newspaper publisher Mediahuis's €146.5 million takeover of Independent News & Media (INM) this week will deliver €22 million to billionaire investor Dermot Desmond's bank account – allowing him to recoup pretty much what he invested in the company over the past decade.

While Mediahuis required the backing of 29.9 per cent INM shareholder Denis O'Brien to get a deal over the line, the Antwerp-based company had also been clear that its offer was also conditional on Desmond agreeing to sell his 15 per cent interest, making him the kingmaker in the deal.

Will he now seek to engineer an exit out of another beleaguered Irish plc?

It is believed Datalex has fielded approaches in recent months from a number of tyre-kickers, seeing if they can nab a bargain

Travel software company Datalex, backed by Desmond even before its 2000 flotation, saw its shares suspended from trading on Thursday after the company failed to file full-year figures by the end of April regulatory deadline. It's the latest in a series of negative headlines in recent months surrounding the former market darling.

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Datalex hit turbulence in January when the company issued a profit warning and said its revenues and sales for the first half of 2018 may have been overstated.

A subsequent independent review carried out by PwC confirmed that the company had booked millions of euros of revenues that it shouldn't have. This is known to relate mainly to Datalex's accounting of revenues from its biggest project: an overhaul of Lufthansa's digital commerce offering. The programme missed key deadlines and went way over budget last year and it is now conceded that some of the set-up costs will never be recovered from the German airline.

On Thursday, Datalex parted ways with its chief executive of almost seven years, Aidan Brogan, leaving it with no permanent chief executive and a long-standing chairman, Paschal Taggart, who signalled last week that he is also in the departure lounge.

A Central Bank investigation, understood to centre around Datalex's upbeat trading statement at the end of November, just weeks before the profit warning, is also underway.

Still, it is believed that Datalex has fielded approaches in recent months from a number of tyre-kickers, seeing if they can nab a bargain. Clearly nothing has emerged that has been deemed serious enough for the company to inform the stock market. So far.

Vacancies at the helm – even though recently-appointed deputy chairman Sean Corkery has stepped into Brogan's shoes on a temporary basis – make Datalex even more vulnerable.

With the shares suspended for the next two months, this may flush out a bidder. Spanish travel technology giant Amadeus, Texas-based software group Sabre and even Lufthansa itself have been speculated as potential suitors.

An embattled board may be tempted. But, as with the INM deal, the position of Desmond, Datalex’s largest shareholder, is key.

The billionaire has given Datalex a fighting chance with a €10 million lifeline in the past few months. This was made up of a €3.86 million of fresh equity (increasing his stake to 29.9 per cent) and a €6.14 million loan, carrying a 10 per cent interest rate.

The funds are critical to underpinning a business that burned through half the cash on its balance sheet last year to end 2018 with $8.8 million in the bank.

Desmond’s then 26.4 per cent stake in the Dublin-listed technology firm was worth €84.5 million almost two years ago when the stock reached €4.10 a piece. His recently-enlarged position had a market value of €22.4 million as the stock last traded at 91.6c on Wednesday.

While the businessman keeps his cards close to his chest – and representatives at his firm didn’t respond this week to requests for comment on his holding – there is a view in parts of the market that Desmond would be a happy seller at a half-decent premium to where the shares last changed hands.

Others believe that Desmond may be open to becoming involved in deal to take Datalex private and allow it sort out its problems without being answerable to market.

But it’s hard to see how long-standing shareholders, who have seen the value of their stock falling by more than 60 per cent in less than four months, would benefit from any sale at this stage.

The group, which has been putting out fires in recent months, needs to ensure that the first phase of the Lufthansa project goes live in the coming months. It must also seek to secure and stabilise its relationship with key customers including JetBlue in the US and Aer Lingus.

Only then will management and analysts be able to figure out what kind of income stream it will have in future and assess the actual value of the business.