Insight Venture Capital's US$624 million takeover bid for Diligent Corp represents fair value for the software developer's shareholders, according to the independent adviser's valuation.

Diligent shareholders will vote on the deal next month, which has the backing of the company's board and a clean bill of health in Simmons Corporate Finance's independent report valuing the transaction. Insight has offered US$4.90 a share via a merger, which requires a simple majority of shareholder support, at least 60 per cent of those holding preference shares, and regulatory approval.

The offer is within Simmons' valuation range of between US$4.44 and US$5.15 and above the US$4.80 midpoint, and the adviser's report deemed the deal to be fair to shareholders.

The report said the downside for investors is that if the deal goes ahead they won't "participate in any potential appreciation in the value of the company's shares from enhanced market recognition of the company's existing financial performance or as a result of improved performance," while noting there was no guarantee those plans would be executed successfully.


Diligent's base internal forecasts are for adjusted earnings before interest, tax, depreciation and amortisation to reach US$111 million in calendar 2020 on revenue of US$265 million, compared to earnings of US$24.3 million on sales of US$99.3 million in 2015.

"In our view, the board's unanimous recommendation of the merger following the open and contestable sale process is a compelling indicator of the market value of a controlling interest in the company," the report said. "The common stock merger consideration also aligns with our assessment of the value of Diligent's shares. Furthermore, we consider the likelihood of an alternative transaction impacting on the control of Diligent to be remote."

Diligent's board hired investment bank Jefferies in October last year to find a buyer for the company after deciding its NZX listing "may be sub-optimal due to the higher costs faced arising from the need to comply with dual regulatory regimes in New Zealand and the US" and it was trading at a discount to similar American companies.

Twenty-seven parties were approached, and while six bids were made in the first round of the sale process, including an additional offer at US$5 a share with strings attached, Insight was the only one to participate in the second round.

"The board concluded that the certainty of Insight's proposal was in the best interests of the company's shareholders as prolonging the sale process presented significant risk that Diligent may not successfully consummate the opportunity to maximise value for shareholders," the report said.

The NZX-listed shares last traded at NZ$7.11, or US$4.83 at the current exchange rate, and have jumped 26 per cent since the deal was announced on February 15.