Tern plc (LON:TERN) Chief Executive Officer Albert Sisto caught up with DirectorsTalk for an exclusive interview to discuss Device Authority’s strategic investment from Venafi, the progress of other companies in the portfolio and trading on the OTC market in the US.
Q1: Tern’s portfolio company Device Authority has a strategic investment from Venafi. Can you just tell us more about Venafi, the deal and how they’re working with Device Authority?
A1: That’s a really good way to start and hopefully we’ll develop a little bit more about the deal itself but Venafi is a billion dollar business in the US, backed by a strong investment company Thoma Bravo. It’s a business that Device Authority (DA) has been doing partnership work for a little over a year, close to 18 months and this relationship that was started as a strategic partnership to develop mutual customers that now evolved into the folks at Venafi wanting to be a strategic investor in the business.
This strategic investment really allows and brings to Device Authority a big brother that has market presence in the data centre, particularly, which is the other half of where the Device Authority operates. So, this investment, this relationship, is something that the investor group Alsop Louie Partners has stated previously that we have been seeking, in terms of providing that additional value and credibility and support from an industry leader.
DA is a growing SaaS business and we believe Venafi has recognized from doing business together with Device Authority, not only the short-term value of the recurring revenue, but the significance of the long-term value of the contracts that Device Authority has, particularly in the mutual customers that we’ve developed and the stickiness of the KeyScaler solution.
So, the solid nature of the business and its complimentary value creation are really the essence of the backing and background of the deal itself.
Q2: Now, the market seems not to viewed the deal in the way that we’d wanted really, based on the share price reaction, and there seems that there may be concerns with the implied valuation of Device Authority. Can you just comment on this and the position of Device Authority more generally?
A2: I think this is a really good question and one that deserves some clarification.
As I said earlier, Devices Authority is a growing SaaS business with a solid investor group as we pointed out, but this is also a complicated transaction with a number of objectives that were put into the structure of the deal to provide value to DA and its ability to grow. Also from a representation point of view, provide a capability back to the Tern shareholders to continue to participate in a significant way within the business.
So from an objective point of view:
1) to state the obvious was to provide Device Authority with a strategic investor, particularly a strategic US investor that they are doing business with, that they share customers with, and then has complimentary market fit.
2) was to provide sufficient capital to allow the company that is Device Authority to achieve their 2022 growth objectives, such that the value creation within the business would not just continue but accelerate as a consequence of this deal and the structure.
3) of significant importance to everyone, particularly the shareholders was also to use this transaction to improve and simplify the capital structure of the business and by proving the capital structure of the business, we are also improving its attractiveness to the market in general. So this transaction has brought additional capital into the business and as simplified the cap tables and the capital structure of the business to make it more attractive downstream as it grows and develops itself into a much bigger business.
4) really important one for us with regard to the shareholders was to maintain our majority position in this exciting company and to keep our shareholders and our investor base with a greater share of the upside potential from what we believe to be a very strong and exciting company.
So, there’s a balance which we try to maintain between valuation, overcapitalizing the business, and not overcapitalizing the business, and providing our shareholders with a continuing majority share of this exciting company and the company which we believe really in the centrepiece now of legislation and other aspects within the industry, to provide greater life cycle management and protection for the edge devices that exist in the world today.
With Venafi, we now have a partner in the data centre to help make that relationship and that market penetration accelerate and again, the objective here was along these lines; improve, the capital table, provide DA with important capital to grow the business, but also to maintain a majority position for our shareholders, such that they can share on the upside potential of the business.
Q3: Now, Device Authority is just one of half of a dozen companies in the group’s portfolio. How are the others progressing and are there any that you’d like to particularly highlight?
A3: I think at this point, I’d like to highlight them all because as we’re coming through this post-COVID and into this new normal, our companies are doing well, as has been reflected in our KPIs that we publish.
We have increased revenue growth across the board in how we measure aggregated revenue, but also in a time when other companies are shrinking in terms of personnel, our aggregate head count across our other companies has grown.
So, I think we have strong companies with very interesting disruptive products and very large markets as it is Device Authority, providing a strong, disruptive capability to the IOT segment in the corporate environment and the businesses are doing good and we look forward to providing some updates in the not too distant future.
Q4: Finally, you announced some months ago, the intention for Tern to start trading on the OTC market in the US, is this still something that we can expect to be seen to put in place?
A4: Yes, this is an aspect of almost the perfect storm, but I guess we’re still progressing with the OTC listing. The timing of our application was at the same time that the regulatory agency in the US changed the process so we, in effect, had to restart our effort in moving this forward as the regulatory process changed in September.
We believe we’re seeing the finish line in the not too distant future, but we still see this as an important aspect of what we do with the company in the future, getting access to additional capital and volume that gets reflected in the AIM market but brings us a greater number of potential shareholders, particularly from the US through the OTC listing.
So, yes, we’re still progressing and believe we’re near the finish line, given the regulatory process and the vagaries of it in the U S