We rarely recommend ‘playing’ the markets but occasionally an opportunity presents itself that may suit certain readers. The situation at Tribal (TRB:AIM) stands out, and we believe there could be around 15% upside on the table for limited risk.

Tribal is an education software firm based in Bristol, providing student management systems and inspection services to schools, higher and further education, and training providers in the UK and internationally.

There’s been a decent business here for years, but it has struggled to execute on its opportunities as it would have liked. Prospects looked bright back in 2016, when Ian Bowles threatened to successfully shake things up, but his passing in 2018 left the company rudderless.

Share price gains made post the Covid outbreak have since flittered away leaving Tribal’s £152 million enterprise value (market cap plus net debt) roughly where it was 15 years ago. That drew attention from Euclidian, which has a much larger global education software footprint and whose private equity-backers Blackstone and Vista clearly see scope to consolidate this niche industry.

A buyout offer landed at the start of October 2023, pitched at an enterprise value of £172 million and offering Tribal shareholders 74p per share in cash, a 40%-odd premium to the 52p share price then. Tribal bit its hand off and immediately recommended the deal to investors.

So, where’s the opportunity now, you might ask? That arrived on 25 October when Tribal said the UK’s CMA (Competition & Mergers Authority) would be taking a look at the deal, sparking a double-digit sell-off in the stock.

The CMA’s interest seems odd. Euclidian has limited UK exposure so presents little competitive threat to the status quo. It is notable that the CMA does seem to have become more engaged recently, involving itself in technology deals in healthcare (UnitedHealth/EMIS), public safety (NEC Software/Capita SSS) and even in education (ParentPay/Capita ESS). All passed, some with remedies.

‘It doesn’t feel like there will be many issues from a UK competition standpoint,’ said analysts at Megabuyte on 25 October.

That doesn’t make the Tribal trade risk-free. The CMA could unearth something that queers the pitch, or Euclidian could simply walk away, and in either case, the share price would likely return to the pre-buyout 50p to 55p levels. On the other hand, delaying the takeover could also provide the opportunity for other trade or private equity buyers to emerge, potentially egging up the takeout price. This, to us, looks like an attractive risk/reward balance. 

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