Datalex rushes to replace Desmond loans leaves bigger stake than ever

Datalex, the airline travel retail software group and former darling of the Irish stock exchange, has had to contend with its fair share of headwinds in recent years. But chief executive Sean Corkery hopes he took the right moment by launching a € 25million share sale to stabilize the company’s finances just as arrivals and departures signs start flashing again with the activity in international airports.

The Dublin-listed company, whose software is used to book flights, seats and bags and allows carriers to sell deals on cars, hotels and insurance, was only starting to gain a foothold in early 2020 – after an accounting scandal the year before – when the pandemic struck.

Loans

As revenues slumped last year with Covid-19, grounding the global aviation industry, Datalex was forced to accept an additional € 10million line of credit from its largest shareholder, Dermot Desmond, on top of the $ 11.3million in expensive emergency loans he made to the company in 2019 to keep the show on the road.

Datalex is not doing much about international travel which is taking off anytime soon, warning on Friday, as it began to rise in equity, that its transaction volumes “will remain suppressed in 2021, compared to 2019”.

“In the short term, the outlook for the travel industry remains uncertain,” he said. “The recovery of the travel industry in 2021 depends on the successful deployment of Covid-19 vaccines around the world and government action on lifting cross-border travel restrictions and easing entry requirements.”

The International Airline Association’s central forecast for 2021 is a 50% improvement over 2020 demand, which would bring the industry to half of 2019 demand levels. Asia is leading the rebound, followed by the United States, with Europe lagging behind.

But Datalex doesn’t have the luxury of waiting for a full recovery to take hold to raise funds. As the Desmond loans carry a cumulative annual interest rate of 10%, the loan of 11.3 million euros has already turned into a debt of 16 million euros.

Paying off this debt is paramount, although Desmond has shown great patience – or our financial sense, depending on your perspective – by extending the repayment deadline twice, the last time until September 2022.

Debacle

Corkery, who parachuted into Datalex in 2019 as part of a management and board overhaul following the accounting debacle, predicted the company is well positioned to benefit as digital sales are expected to lead to a resumption of airline passenger bookings and carriers are cutting spending. build their custom computer systems to use the products of software vendors.

Cantor Fitzgerald analyst Ian Hunter said the decision of the new management team to refocus the business as a “cloud-based” software-as-a-service company – with software delivery and licenses done by subscription online rather than by contractors deployed to install it on computers – will only help Datalex and its airline customers.

Datalex’s new products, which enable airlines to generate ancillary revenue and ‘make the right offer to the right customer at the right time’, are generating “significant interest and have the potential to stand out in the market,” said Hunter.

Corkery told the Irish Times five weeks ago that Datalex had seen “a lot” of requests for proposals in the market from airlines looking to improve their offering and digital returns. Still, carriers were taking their time to make concrete decisions, he said.

If Datalex wants to capitalize on the opportunities, it will have to show its potential partners that it has a solid balance sheet. The remainder of the proceeds from the sale of shares, as well as approximately € 3 million in cash on the balance sheet at the end of 2020, would bring net cash to approximately € 11 million.

Not

Datalex’s capital increase has three stages. First, Desmond, who owns a 29.8% stake, having been a shareholder before the company’s IPO in 2000, partnered with investor Nick Furlong and his vehicle Pageant Holdings to buy 14.7 million euros of new shares as key investors in the sale of shares.

The balance is being lifted through a € 4.2 million equity investment, which was blocked on Friday, and an additional € 6.1 million offered to existing shareholders over the next three weeks. Datalex brokers Goodbody Stockbrokers found conditional buyers for most of those stocks on Friday, if demand from existing investors is not sufficient.

While stock placements are normally done at a discount, Datalex’s board signaled a level of confidence in deciding to offer the new stock at Thursday’s closing price of 50 cents per share.

Common shareholders considering buying shares on the cash call can be reassured that Desmond – who, as Datalex’s main creditor, has access to more financial information than most – sees the benefit of efficiently converting most of what is owed to it by the company. in an equity investment.

Bet

But in the rush to get rid of the Desmond loans, Datalex structured the capital increase so that the billionaire’s stake rose to around 40%.

This puts him in an even stronger position in the cockpit when it comes to determining the future of a company that has long been surrounded – even in its darkest days of recent years – with whispers of takeover. .

Meanwhile, Desmond has agreed to keep the additional € 10million line of credit available to Datalex until the end of 2022, should the company need more cash.

But with all the levies on that also facing a 10% interest rate, Corkery would like to replace the facility with something cheaper if he wants to prove to clients and the market that the fundraiser has done its job. .


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About Christopher Easley

Christopher Easley

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