Dublin-based hedge fund builds stake in Adapt IT

Who is buying JSE-listed Adapt IT shares at or above the R6.50/share offer price tabled earlier this month by Canada’s Volaris Group? A disclosure by Adapt IT to investors on Friday may have shed some light on this question.

Blacksheep Master Fund, controlled by Dublin, Ireland-based hedge fund manager Blacksheep Fund Management, has in recent weeks acquired almost 10 million Adapt IT shares, or 7.2% of the number of securities in issue, excluding shares held in the company’s treasury (6.28% including the treasury shares).

But has it been snapping up shares above the R6.50/share all-cash offer from Volaris Group and, if so, why?

Last week, Adapt IT shares changed hands at a peak of R6.55 apiece – 5c above the Volaris offer tabled on 7 April – and were trading at R6.52 at the time of publication on Monday.

Ordinarily, given the time value of money and deal risk — the Volaris offer is unlikely to be concluded soon, if it happens at all — one would expect Adapt IT to be trading at a small discount to the offer price (say, around R6/share). But that’s not the case here.

Clearly, investors are expecting further upside to Adapt IT shares – upside that is only likely to transpire in the short term if there is a higher offer made to shareholders, either from Volaris or from Huge Group, which was the first to make an approach to Adapt IT in late January.

‘Investment fund’

Huge has shown no inclination so far to up its R5.52/share all-share offer to Adapt shareholders. (The Volaris offer appears to enjoy Adapt IT management’s support whereas the Huge Group offer does not.)

Blacksheep Fund Management describes itself in its annual report as an “investment fund” managing more than US$236-million on behalf of investors. “The total portfolio value may be much higher due to cash assets that are not publicly disclosed, such as fixed income, real estate or cash equivalents,” it said in a recent regulatory filing.

Blacksheep’s biggest investments are in Kkr, Google parent Alphabet and Amazon.com. Krupesh Patel is listed as Blacksheep’s chief operating officer and chief risk officer. He works closely with chief investment officer Alexis Fortune. Neither Patel nor Fortune could immediately be reached via LinkedIn for comment on Monday.

However, the hedge fund manager’s decision to invest in Adapt IT is curious given that the majority of the companies in the fund’s portfolio are large-cap stocks – companies with market capitalisations of more than $10-billion make up 50% of the total holdings value, while small-cap stocks (like Adapt IT) make up only 0.1% of the portfolio.

Irnest Kaplan, MD of Kaplan Equity Analysts, said he believes the Volaris offer has a good chance of success, but said the Canadian firm, which invests in value software firms around the world, should sweeten its offer.

Kaplan said that he is not aware what Blacksheep’s intentions are in building a stake in Adapt IT, adding that it may have been buying the shares for some time already and only recently triggered the 5% threshold at which JSE-listed companies are required to inform shareholders.  — © 2021 NewsCentral Media