Update: Analysts say Halogen worth up to $321M as takeover talks swirl

Halogen Software shares continued to rise Friday, a day after the Ottawa-based tech company said outside suitors have expressed “significant interest” in acquiring the firm.

Halogen, which sells HR software solutions, said it was creating a special committee tasked with exploring strategic alternatives to maximize shareholder value.

Such a process can typically look at finding higher bids for the company, selling some assets or, as Halogen pointed out, “continuing to execute on its existing business plan.”

The special committee will be comprised of independent directors and led by former Cognos CEO Rob Ashe, who joined Halogen’s board in 2013.

Analyst Nick Agostino of Laurentian Bank Securities wrote in a research note that Halogen is an attractive asset, and placed odds of an acquisition at more than 50 per cent. He calculates a potential sale price of between $11.50 and $15 per share, which would value Halogen as high as $321 million.

Blair Abernethy, an analyst with Industrial Alliance Services, estimated similar values of between $11 and $14 per share in a research note. Both Abernethy and Agostino assigned a “buy” rating to Halogen’s shares.

Halogen did not name the companies that are interested in acquiring the Ottawa firm, but Mr. Agostino told OBJ in an interview that he believes potential suitors may include traditional HR software vendors that historically focus on payroll and benefit services but are now looking to expand their presence in the talent management space.

He added in his note that it is likely Halogen already has an offer in hand, and is now looking to maximize value from a potential takeover.

Founded in 1996, Halogen Software went public in 2013 with a $55-million IPO that was hailed by analysts. It remains one of the city's most valuable publicly traded companies.

The company’s software-as-a-service business model effectively involves renting out and servicing its talent management products. This means the business is not based on big deals but on accumulating a steady stream of contracts to generate recurring revenue and continued growth, executives have previously said.

Mr. Agostino says the predictable nature of Halogen’s SaaS model increases its value and makes it an attractive candidate for acquisition.

“There’s a good cash flow generation potential that is probably yet to be fully realized from their model. As they scale, you would see that,” he says.

In its most recent financial reports, Halogen reported a $800,000 quarterly profit – up from a $3.8 million loss a year earlier – and rising revenues.

After opening trading at $8 on Thursday, Halogen shares rose as high as $10.245 on Friday, a 28 per cent increase since the strategic alternatives announcement.