European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<p>Since the offer was first announced in March, I had been long <a href="https://www.smartkarma.com/entities/cerved-group-s-p-a" target="_blank" data-smartkarma-citation="entities:21171:1" rel="noopener">Cerved Group S.p.A. (CERV IM)</a>  (target prices of €10.00/share, raised to €11.04/share). At the time of publishing my last Insight (see <a href="https://www.smartkarma.com/insights/castor-raises-bid-for-cerved" target="_blank" data-smartkarma-citation="insights:56921" rel="noopener">Castor Raises Bid for Cerved</a>), gross spread to the increased consideration (€10.20/share) was 2.3%. In a last push, Castor (ION's bidco) offered a success premium of €0.30/share, taking the total consideration to €10.50/share, in case it reached over 90% acceptances.</p>
<p>Castor announced that at the end of the tender period, 78.9% of the shares were tendered, which together with a 1.1% stake acquired in the market by Castor over different purchases, represent in total 80% of the share capital of Cerved, thus fulfilling the minimum threshold condition. The <strong>offer is effective and the final price is €10.20/share.</strong></p>
<p>Since Castor did not reach the 90% threshold in its takeover bid, <strong>there's no obligation to buy the shares of minority shareholders</strong> (voluntary sell-out procedure). <strong>Still, a delisting could still happen</strong> through a merger between Cerved and one of ION’s subsidiaries.</p>
<p>ION has said owning more than two-thirds of Cerved would allow it to call an EGM at which it could seek approval for a merger between Cerved and one of its units. A candidate could be Cedacri, an Italian banking software provider acquired by ION in March 2021.</p>
<p>The shares are still liquid, between €6 mn and €9 mn over the last two sessions and trading at €10.21 (VWAP), a wee bit above the offer price. <strong>Time to offload</strong>.</p>

Since the offer was first announced in March, I had been long Cerved Group S.p.A. (CERV IM)  (target prices of €10.00/share, raised to €11.04/share). At the time of publishing my last Insight (see Castor Raises Bid for Cerved), gross spread to the increased consideration (€10.20/share) was 2.3%. In a last push, Castor (ION's bidco) offered a success premium of €0.30/share, taking the total consideration to €10.50/share, in case it reached over 90% acceptances.
Castor announced that at the end of the tender period, 78.9% of the shares were tendered, which together with a 1.1% stake acquired in the market by Castor over different purchases, represent in total 80% of the share capital of Cerved, thus fulfilling the minimum threshold condition. The offer is effective and the final price is €10.20/share.
Since Castor did not reach the 90% threshold in its takeover bid, there's no obligation to buy the shares of minority shareholders (voluntary sell-out procedure). Still, a delisting could still happen through a merger between Cerved and one of ION’s subsidiaries.
ION has said owning more than two-thirds of Cerved would allow it to call an EGM at which it could seek approval for a merger between Cerved and one of its units. A candidate could be Cedacri, an Italian banking software provider acquired by ION in March 2021.
The shares are still liquid, between €6 mn and €9 mn over the last two sessions and trading at €10.21 (VWAP), a wee bit above the offer price. Time to offload.

<p>On 27 August, Castor (the acquisition vehicle of Ion) raised the offer price to <strong>€10.20/share</strong>, a c. 7.4% increase, for a total consideration of €1,976 mn. The minimum threshold condition was raised to a stake of 80% from 50% plus one share and the <strong>tender period</strong> was extended <strong>until 9 September</strong>.</p>
<p>Ion has been pursuing Cerved since Cerved said it was negotiating with PE funds the sale of its credit management division. Ion had snapped Italian banking software provider Cedacri just prior to presenting the first offer for Cerved. The market considers that a combination of the two groups would make industrial sense, although Ion stated it supports Cerved's business plan. Nevertheless, Ion is know for aggressive cost-cutting. In this brinkmanship game between Ion and Cerved, the Board of the latter considers the increased offer insufficient.</p>
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<p>Ion has grown largely via acquisitions and therefore has acted as a consolidator, looking for complementary businesses with which to integrate its services. Ion aims to disrupt the current market by fostering automation in the financial markets and featuring high potential complementarities.</p>
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<p>Cerved is the third-largest collector of NPLs in Italy, a business that is expected to grow due to  rising bad debts resulting from the aftermath of Covid-19. Ion has been pursuing Cerved since the latter said it was negotiating with PE funds the sale of its credit management division. </p>
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<p>My fair value estimate on a standalone-basis is €11.04/share (DCF based, see <a href="https://www.smartkarma.com/insights/trading-above-terms-at-the-start-of-the-tender-offer-period" target="_blank" data-smartkarma-citation="insights:54546" rel="noopener">Trading Above Terms at the Start of the Tender Offer Period</a>), 8% above the current offer price. Median TP on Capital IQ consensus is €10.4. Gross spread to the increased consideration is 2.3%. Upside could come from an increased offer from Ion. The share is supported by solid fundamentals, although risk could come from business plan execution. Reiterate <strong>long CERV IM</strong>.</p>
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On 27 August, Castor (the acquisition vehicle of Ion) raised the offer price to €10.20/share, a c. 7.4% increase, for a total consideration of €1,976 mn. The minimum threshold condition was raised to a stake of 80% from 50% plus one share and the tender period was extended until 9 September.
Ion has been pursuing Cerved since Cerved said it was negotiating with PE funds the sale of its credit management division. Ion had snapped Italian banking software provider Cedacri just prior to presenting the first offer for Cerved. The market considers that a combination of the two groups would make industrial sense, although Ion stated it supports Cerved's business plan. Nevertheless, Ion is know for aggressive cost-cutting. In this brinkmanship game between Ion and Cerved, the Board of the latter considers the increased offer insufficient.

Ion has grown largely via acquisitions and therefore has acted as a consolidator, looking for complementary businesses with which to integrate its services. Ion aims to disrupt the current market by fostering automation in the financial markets and featuring high potential complementarities.


Cerved is the third-largest collector of NPLs in Italy, a business that is expected to grow due to  rising bad debts resulting from the aftermath of Covid-19. Ion has been pursuing Cerved since the latter said it was negotiating with PE funds the sale of its credit management division. 

My fair value estimate on a standalone-basis is €11.04/share (DCF based, see Trading Above Terms at the Start of the Tender Offer Period), 8% above the current offer price. Median TP on Capital IQ consensus is €10.4. Gross spread to the increased consideration is 2.3%. Upside could come from an increased offer from Ion. The share is supported by solid fundamentals, although risk could come from business plan execution. Reiterate long CERV IM.
















<p>The <strong>tender offer period</strong> for <a href="https://www.smartkarma.com/entities/cerved-group-s-p-a" target="_blank" data-smartkarma-citation="entities:21171:1" rel="noopener">Cerved Group S.p.A. (CERV IM)</a> has started, and <strong>will end on 5 August</strong>. On 16 July, the first day, the <strong>shares closed at €10.04</strong>, 5.7% above the offer price and in line with my prior TP of €10/share (see <a href="https://www.smartkarma.com/insights/cerved-group-castor-srl-sweet-opportunity-in-loans-gone-sour" target="_blank" data-smartkarma-citation="insights:48990" rel="noopener">Cerved Group - Castor Srl: Sweet Opportunity in Loans Gone Sour</a>).</p>
<p>The <strong>Board of Cerved</strong> says that the <strong>offer from Castor Bidco is inadequate</strong> and does not take into account the growth prospects of Cerved, sale of Cerved Management Group, synergies, the premium is low and the bid opportunistic.</p>
<p>Activist investor Berry Street has said it will not tender its 3% stake at the current bid price. Berry Street previously held 1% of <a href="https://www.smartkarma.com/entities/kaz-minerals-plc" target="_blank" data-smartkarma-citation="entities:21999:1" rel="noopener">KAZ Minerals (KAZ LN)</a>, whose takeover offer was increased by c. 36%.</p>
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<p>Castor stated in the announcement that in the event that, following the offer, the offeror comes to hold a total stake greater than 90%, but lower than 95%, the offeror will not restore a free float sufficient to ensure regular trading.</p>
<p>If as a result of the offer, the offeror holds at least 95% of the shares, it will exercise its right to purchase the remaining Cerved Shares. If the right to purchase is exercised, Borsa Italiana will order the suspension from listing and/or the delisting of Cerved Shares. If several shareholders collectively own above 5% of the share capital, they may block a hypothetical squeeze-out.</p>
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<p>I revise upwards my initial €10.0/share valuation of Cerved on a standalone basis. By using inputs from Capital IQ consensus (revenue, EBITDA, Capex), WACC of 8%, 11.5x EV/EBITDA exit multiple and g=2%, my new estimate of <strong>fair value </strong>on a standalone-basis<strong> is €11.04/share,</strong> this is a c.10% upside to the current market price and <strong>c. 16% above the current offer price</strong><em>.</em> For comparison, mean TP on Capital IQ consensus is €10.23/share.</p>
<p>The market awaits a sweetened offer, which is highly likely in my view. An increase would be justified by better prospects and synergies, which equally split could be worth up to €0.455/share and there is some PE interloper risk. <strong>Long CERV IM</strong>.</p>
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The tender offer period for Cerved Group S.p.A. (CERV IM) has started, and will end on 5 August. On 16 July, the first day, the shares closed at €10.04, 5.7% above the offer price and in line with my prior TP of €10/share (see Cerved Group - Castor Srl: Sweet Opportunity in Loans Gone Sour).
The Board of Cerved says that the offer from Castor Bidco is inadequate and does not take into account the growth prospects of Cerved, sale of Cerved Management Group, synergies, the premium is low and the bid opportunistic.
Activist investor Berry Street has said it will not tender its 3% stake at the current bid price. Berry Street previously held 1% of KAZ Minerals (KAZ LN), whose takeover offer was increased by c. 36%.

Castor stated in the announcement that in the event that, following the offer, the offeror comes to hold a total stake greater than 90%, but lower than 95%, the offeror will not restore a free float sufficient to ensure regular trading.
If as a result of the offer, the offeror holds at least 95% of the shares, it will exercise its right to purchase the remaining Cerved Shares. If the right to purchase is exercised, Borsa Italiana will order the suspension from listing and/or the delisting of Cerved Shares. If several shareholders collectively own above 5% of the share capital, they may block a hypothetical squeeze-out.


I revise upwards my initial €10.0/share valuation of Cerved on a standalone basis. By using inputs from Capital IQ consensus (revenue, EBITDA, Capex), WACC of 8%, 11.5x EV/EBITDA exit multiple and g=2%, my new estimate of fair value on a standalone-basis is €11.04/share, this is a c.10% upside to the current market price and c. 16% above the current offer price. For comparison, mean TP on Capital IQ consensus is €10.23/share.
The market awaits a sweetened offer, which is highly likely in my view. An increase would be justified by better prospects and synergies, which equally split could be worth up to €0.455/share and there is some PE interloper risk. Long CERV IM.


Trading Above Terms at the Start of the Tender Offer Period

<p>ION Capital and Singapore's sovereign wealth fund GIC <a href="https://company.cerved.com/sites/company.cerved.dev/files/102%20vF%20ENG.pdf" target="_blank" rel="noopener">have offered to acquire</a> Italian financial services group <a href="https://www.smartkarma.com/entities/cerved-information-solutions-s" target="_blank" data-smartkarma-citation="entities:21171:1" rel="noopener">Cerved Information Solutions S (CERV IM)</a> for €1.86 bn.</p>
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<li>The duo, operating through an entity that is 85.75% owned by trading software and financial data provider ION and 10% owned by GIC, has bid €9.50 per share, a 34.9% premium to the share price on 5 March.</li>
<li>ION said it plans to support Cerved's current business plan if it acquires the company. Italy-based FSI has agreed to to underwrite the deal up to €150 million.</li>
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<p>Cerved said on 7 March that it was in conversations with unnamed private equity firms for the sale of its bad loan collection unit, Cerved Credit Management Group Srl. The news had already sent the shares up by c. 15%.</p>
<p>Pignataro, owner of ION Capital, usually purchases when he sees low growth and stagnant share prices, then he applies aggressive cost cuts. Cerved's credit management division is the third largest bad debt collector in Italy. The risk management business offers credit parameters to about 40% of the market. Demand has already increased with the granting of state-backed aid loan banks.</p>
<p>There is a minimum acceptance condition of <strong>more than 90%</strong>, antitrust approval and approval from Office of the Italian Prime Minister.</p>
<p>In the current bid, the premium-implied cost cuts, approximately €50 mn euros per year (about 18% of COGS) seem already ambitious. Although much of the potential cost cuts is already reflected in the premium, the shares closed at €9.63 on 10 March, suggesting the possibility of a counterbid or a sweetened offer.</p>
<p>Cerved has closed on 10 January at €9.63, c. 1.4% above the offer price. This could suggest that <strong>ION's offer is opportunistic</strong>, despite offering a c. 35% premium over the share price and 11.6x EV/Fwd EBITDA. This valuation is the highest since end of January 2018, when Cerved was trading close to 13.4x.</p>
<p>Recommendation is <strong>Long Cerved, TP €10.0</strong> (11.9x EV/Fwd EBITDA).</p>

ION Capital and Singapore's sovereign wealth fund GIC have offered to acquire Italian financial services group Cerved Information Solutions S (CERV IM) for €1.86 bn.

The duo, operating through an entity that is 85.75% owned by trading software and financial data provider ION and 10% owned by GIC, has bid €9.50 per share, a 34.9% premium to the share price on 5 March.
ION said it plans to support Cerved's current business plan if it acquires the company. Italy-based FSI has agreed to to underwrite the deal up to €150 million.

Cerved said on 7 March that it was in conversations with unnamed private equity firms for the sale of its bad loan collection unit, Cerved Credit Management Group Srl. The news had already sent the shares up by c. 15%.
Pignataro, owner of ION Capital, usually purchases when he sees low growth and stagnant share prices, then he applies aggressive cost cuts. Cerved's credit management division is the third largest bad debt collector in Italy. The risk management business offers credit parameters to about 40% of the market. Demand has already increased with the granting of state-backed aid loan banks.
There is a minimum acceptance condition of more than 90%, antitrust approval and approval from Office of the Italian Prime Minister.
In the current bid, the premium-implied cost cuts, approximately €50 mn euros per year (about 18% of COGS) seem already ambitious. Although much of the potential cost cuts is already reflected in the premium, the shares closed at €9.63 on 10 March, suggesting the possibility of a counterbid or a sweetened offer.
Cerved has closed on 10 January at €9.63, c. 1.4% above the offer price. This could suggest that ION's offer is opportunistic, despite offering a c. 35% premium over the share price and 11.6x EV/Fwd EBITDA. This valuation is the highest since end of January 2018, when Cerved was trading close to 13.4x.
Recommendation is Long Cerved, TP €10.0 (11.9x EV/Fwd EBITDA).

Cerved Group - Castor Srl: Sweet Opportunity in Loans Gone Sour

Italy

Cerved Group S.p.A. is an Italy-based company providing professional information services, analytics, and credit management solutions to companies, financial institutions, insurance companies, and public administrations. The company offers products and services including credit information, marketing solutions, and credit management, helping clients manage risk, enhance sales, and assess credit status. Cerved was founded in 1973 and is headquartered in San Donato Milanese, Italy.

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Cerved (CERV IM)

ION/Cerved: Offer Results, What Next?

Since Castor did not reach 90%, there's no obligation to buy the shares of minority holders. Still, a delisting could still happen. Shares are...

Jesus Rodriguez Aguilar

Castor Raises Bid for Cerved

My fair value estimate on a standalone-basis is €11.04/share. Gross spread to the increased consideration is 2.3%. Upside could come from an...

Jesus Rodriguez Aguilar

Trading Above Terms at the Start of the Tender Offer Period

The market awaits a sweetened offer, highly likely in my view. New TP (DCF based) is €11.04/share. An increase would be justified by better...

Jesus Rodriguez Aguilar

Cerved Group - Castor Srl: Sweet Opportunity in Loans Gone Sour

Cerved is trading above offer, which seems opportunistic, despite a 35% premium and 11.6x EV/Fwd EBITDA (highest valuation since Jan. 2018). LONG...

Jesus Rodriguez Aguilar

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