Contested bids in the quoted private-equity industry are rare enough. The assumption is that the bidder can do a better job than the company under siege in liquidating the investment portfolio, which is tricky to prove. The offer for SVG Capital from HarbourVest is an odd one, in that the bid reaches its first closing day on Thursday with the wind in HarbourVest’s favour but no obvious reasons why investors should accept now.
HarbourVest is offering 650p in cash. SVG has been under pressure over performance and the amount it pays key executives. The latest net asset value figure for SVG is 735p which would suggest that the offer well undervalues the company, except that SVG had to take a writedown of £13.1 million against one of its investments which rather undermined its case.
SVG is the old private equity fund aimed at investing exclusively in Permira funds, but it has been diversifying. Exactly what the company is worth is a moot point, but one valuation has it at almost 750p a share. Coller Capital has 26 per cent and has said that it will accept; HarbourVest scooped up another 8.5 per cent of the company while shareholders including Old Mutual, Legal & General and Aviva have indicated that they will also accept, which would push the total beyond the needed 50 per cent. Except that SVG said yesterday, in response to some usefully placed market rumours, that it was talking to other bidders, one of which was a consortium including Goldman Sachs and the Canada Pension Plan Investment Board, about a rival bid. There is at least one other potential bidder; any offer is going to come in at well above the terms from HarbourVest, if it arrives.
There seems no obvious reason why the other investors should rush to accept the terms on offer, given the obvious upside. SVG shares are sitting at 678½p, up 1½p on yesterday’s announcement. The discount represented by HarbourVest’s cash offer therefore looks far too large.
HarbourVest has history in picking up private equity vehicles on the cheap through its $806 million acquisition of Absolute Private Equity in 2011 and the $1.4 billion acquisition of Conversus Capital. This still looks like a low ball offer, investors should await developments.
My advice Hold
Why The offer from HarbourVest looks low ball and this could flush out another, better offer from elsewhere
ITE Group
You make your own luck in this world. ITE has been of concern to investors in the past because of its exposure to Russia and the weakening economy there. The other big market for the exhibition and conference organiser is Turkey; the shares have enjoyed a Brexit-related bounce since the summer because of the fall in the value of sterling, but the attempted coup in Turkey has sent them into sharp reverse again.
Yesterday’s trading statement does not contain much to enthuse investors. Revenues in the three months to the end of September, the last of the financial year, were unchanged at £23 million but this disguises a currency gain and on a like-for-like basis they were down by 8 per cent.
Companies such as ITE are always governed by the swings in revenue because of the timing of the various exhibitions they run; the quarter included WorldFood Moscow, ITE’s biggest food event, and the state of the Russian economy meant that sales of space there were down by more than 10 per cent.
That coup in Turkey has meant an inevitable decline in international travel and bookings for exhibitions, while any improvement in relations between Russia and Turkey has yet to be reflected in events on the ground.
Revenues in the financial year so far are down by 1 per cent. I have been cautious on ITE shares before; off 5¾p at 156¾p and on almost 15 times’ earnings, I would not be chasing them now even if this year does at least look like the nadir of its fortunes.
My advice Avoid
Why There seems no obvioius upside for the shares
Paragon Group
I have always been a little wary of the various small banks that have sprung up to challenge the big high street operators, but Paragon, which has had a licence to run a bank since early in 2014, has tried to find a specialist business within that area, providing lending to small and medium sized businesses.
The big deal was last year’s £117 million purchase of Five Arrows. Yesterday’s acquisition of Premier Asset Finance, a finance broker, for £8.5 million and another £12 million potentially over the next five years, is not in the same league but seems a sensible infill acquisition.
The multiple being paid looks like a sensible one, too — say ten to 11 times earnings. Premier lends more than £100 million a year to those smaller businesses but is mainly operating in Scotland and the north, so the potential growth is there. Paragon bought back £50 million of its shares in each of the past two years, which gives the shares some support as this continues.
The shares, up 5p at 318½p, are trading at a bit below net asset value, as expected when the figures for the year to the end of September are announced in November. They still look like good value.
My advice Buy
Why The potential for growth is undeniable
And finally...
The decision by the people of Colombia to refuse to ratify the peace deal drawn up by the country’s government and Farc rebels has been described as that country’s Brexit moment. It is not terribly good news for companies which have invested in Colombia, such as Amerisur Resources, the oil and gas explorer. Yesterday’s trading update makes no mention of the vote, but it does reassure that the interconnector pipeline between Colombia and Ecuador, crucial to the company’s fortunes, is completed.
