Datalex in takeover talks before profit warning

Datalex, the troubled Dublin-listed retail software provider to airlines, was in takeover talks with an overseas company before it was forced to issue a profit warning earlier this year, The Irish Times has learned.

Sources said discussions were at an advanced stage but the would-be acquirer had not tabled a formal offer that would have required a stock market announcement by the time Datalex shocked investors on January 15th by saying it had uncovered potential accounting irregularities and expected to post an earnings shortfall for 2018.

The company subsequently confirmed in March that a review by outside consultants at PwC Ireland had identified "significant" financial irregularities at Datalex, including that it had incorrectly recognised $3.5 million (€3.1 million) of services revenue and $2.9 million of other sales in the first half of last year.

Talks with the third party – understood to be another software provider – broke down in the wake of the announcement, according to the sources. While Datalex has been surrounded by perennial speculation that it could be targeted by Spanish technology giant Amadeus or Texas-based software group Sabre, it is understood that neither of these were behind the takeover attempt.

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A spokesman for the company declined to comment on the matter.

Datalex saw its shares tumble by more than 60 per cent between the profit warning and trading in the stock being suspended at the end of April after the group failed to file full-year figures in compliance with market transparency rules.

Cash injection

The company was forced during this period to accept a €10 million cash injection from its main shareholder, Dermot Desmond, by way of the sale of €3.86 million of new shares to the billionaire and a €6.14 million loan, carrying a 10 per cent annual interest rate. Mr Desmond's stake has increased from 26.4 per cent to 29.9 per cent as a result of the stock placing.

It is understood that the company has fielded a number of tentative, opportunistic bid approaches in recent months.

Datalex announced on Tuesday that it had appointed former senior Google executive Niall O'Sullivan as its new chief financial officer, making him the third person to hold the post in the past six months. Mr O'Sullivan had been responsible for accounting, financial compliance and controls for Europe, the Middle East and Africa for the internet giant.

“The appointment is of a much higher calibre than I had expected,” said a Dublin-based fund manager, who is not currently a holder of Datalex shares. “It suggests the company is in better shape than the market implies.”

Datalex's chairman of nine years Paschal Taggart confirmed last month that he would not be seeking re-election at the company's annual general meeting this year, while chief executive Aidan Brogan quit two weeks ago. He has been succeeded on an interim basis by the company's recently-appointed deputy chairman Seán Corkery.