Increasing and Decreasing Apps in Play After $1.2 Billion Bid

It provides the world’s largest tech companies with crowd-based AI training data and an annotation platform to improve the accuracy of their algorithms, enabling everything from targeted ads to search engine results and image recognition.

The company was forced to confirm the non-binding proposal after Street Talk revealed on Wednesday evening that a suitor was circling around.

Appen shares rose more than 29 percent to $8.27, pushing its market cap back above $1 billion before halting trading Thursday afternoon, citing “developments” regarding Telus’ proposal.

Appen CEO Mark Brayan has been trying to diversify the company’s customer base. James Brickwood

Appen’s board is advised by Barrenjoey Capital Partners, Atlas Technology Group and law firm Allens, while Telus is advised by Rothschild, Barclays and Corrs Chambers Westgarth.

The board of Appen is in talks with Telus, hoping to improve the terms of the offer. The language in Appen’s announcement implies that the company is open to participating, if it sweetens its offer. Thursday afternoon’s trading freeze suggests progress is underway. Appen has offered to provide some business and financial information on a non-exclusive basis, subject to Telus agreeing to a confidentiality and standstill agreement.

Appen’s annual general meeting is scheduled for Friday, but in response to the unsolicited offer, it issued a trading update Thursday that showed revenues had fallen below last year’s levels.

First half earnings before interest, taxes, depreciation and amortization were also expected to be significantly lower in the first half, due to the decline in sales and investments in the company’s product, technology and office transformation.

But year-to-date sales, plus orders in hand for delivery, increased 14 percent from this time last year to $297 million ($418.7 million) and it expects higher sales and EBITDA towards the end of the year. second half of the fiscal year, than in the preceding 12 months.

Appen’s revenue decline is due to lower spending on ad-based artificial intelligence projects by the major tech companies, including Facebook and Google, thanks to changes to Apple’s data privacy, which have forced them to divert spending away from intrusive tracking technology. from users.

In February, the market learned how badly Apple’s move to allow iOS users to block the app-tracking technology that underlies the targeted ad revenues of the major tech giants was impacting Appen’s core customer base. , when Facebook revealed it expected a $10 billion hit in ad revenue from the change.

A deal that must be done

Analysts addressed by The Australian Financial Review believed it was likely a deal would come and investors would be happy with an offer on the table.

Australian technology analyst Garry Sherriff of RBC Capital Markets said Appen’s performance had been “decoupled” from its core clients over the past 12 months.

“The uncertain outlook due to Apple’s opt-in privacy changes and the lack of revenue visibility make it difficult to convince APX (Appen),” he said.

“We believe an offer close to $10 a share is likely to be well received by shareholders.”

An analyst, who declined to be named, said he expected the Vonwillers to be happy to leave.

“Appen’s management team has lost the Aussie market, so my best guess is it will work out, maybe for $9.50,” they said.

Telus’s offer comes at a 48.4 percent premium to Appen’s current share price and is in line with where the company traded six months ago.

Logical buyer

Telus International, a $6.3 billion company, is the most obvious strategic candidate for Appen, as it owns its rival Lionbridge. Its largest shareholder, Telus Corporation, is a $33 billion company.

Lionbridge, like Appen, offers AI data annotation services.

Telus acquired Lionbridge in 2021 for $C1.2 billion in a debt and equity deal, just weeks before Lionbridge was set to go public.

The EBITDA multiple paid by Telus for Lionbridge appears to be significantly higher than the offering for Appen.

Despite being about half the size of Appen, Lionbridge paid a similar price. A note from Citi estimated that the deal closed with an EBITDA multiple of 16 to 20 times.

In comparison, Appen’s $1.2 billion price tag gives it an EBITDA multiple of about 11 times.

“While there is downside risk… given similar business models, we expect Telus International to realize significant cost synergies,” Citi’s Siraj Ahmed said in a note.

“We see potential for a bid from another BPO (business process outsourcing)/IT services player, especially when you consider that Telus International appears to be gaining market share by combining its BPO offering with data labeling and AI Training data services.”

Transformation phase

Appen has a crowd of over 1 million employees who use it to annotate the data, but it has invested in technology to automate more of this process and appeal to a wider audience of customers.

The concentration of its revenues from the big technology companies has long been one of the biggest risks facing the company, but Appen has been successful in expanding in China and has won a string of customers for autonomous vehicles. However, it is still in its infancy.

Neither Mark Brayan, CEO of Appen, nor its chairman Richard Freudenstein (who was appointed in 2021) were available for comment on Thursday.

Appen’s largest shareholder is US-based global deep value investor Mondrian Investment Partners, which has increased its stake in the company since last year and turned significant in November. It currently holds a 9.4 percent stake.

dr. Vonwiller and her husband Chris – the former CEO and longtime chairman of Appen – own 7.34 percent of the company.

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