PHILLIP Securities on Monday (Nov 20) recommended that the shareholders of Vertex Technology Acquisition Corporation (VTAC) vote in favour of its proposed acquisition of live-streaming operator 17Live.

The special-purpose acquisition company in October had announced plans to acquire 17Live for over S$800 million by issuing new VTAC shares in a deal that would value the business at some S$1.2 billion.

If 17Live hits a set financial target, an earnout of 24.4 million new shares at S$5 each will be allotted to applicable shareholders, amounting to S$122 million.

Phillip analyst Paul Chew said VTAC shareholders should fully redeem their shares at the price range of S$5 to S$5.02 apiece.

Assuming there is no redemption, VTAC’s assigned fair value as a combined entity would stand at S$5.08.

However, it falls to a significantly lower fair value of S$4.55 if the earnout shares are fully issued.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

Chew said: “We also believe the purchase cost of the shares issued to the vendors of 17Live, promote shares and earnout shares are significantly lower than the redemption price range. Based on our current fair value, we view the warrants as out of money and there is a risk it can expire at zero value.”

The research house values 17Live at between US$581 million and US$700 million, based on price-to-sales and an enterprise value to Ebitda (earnings before interest, taxes, depreciation and amortisation) relative multiple of its listed peers.

“When we equally weigh the importance of sales and earnings plus balance sheet strength, our 17Live fair value is US$641 million,” said Chew.

He noted that while 17Live’s revenue had been declining since 2021, the company’s earnings in H1 FY2023 improved on the back of cost-cutting measures.

The analyst also highlighted 17Live’s virtual live-streaming segment as a potential growth catalyst for the company. He reckons this segment should expand from its “modest” 1 per cent contribution to the company’s FY2022 revenue.