European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<a href="https://www.smartkarma.com/entities/sanne-group-plc" target="_blank" data-smartkarma-citation="entities:22155:1" rel="noopener">Sanne Group PLC (SNN LN)</a> has agreed to a £1.51 billion takeover by Apex, a PE-backed competing provider of services to the financial industry.
The offer is 920p/share, 0.5% above my estimate of fair value of 915p (see <a href="https://www.smartkarma.com/insights/cinven-sweetens-possible-offer-for-sanne" target="_blank" data-smartkarma-citation="insights:52932" rel="noopener">Cinven Sweetens Possible Offer for Sanne</a> ), and c. £90 mn higher than the previous prospective offer from Cinven (at 875p/share).
<ul>
<li>For an implied equity value of c. £1,509.4 mn and implied EV of £1,625.2 mn; 24.7x EV/21e EBITDA and 33.5x Fwd P/E (Capital IQ consensus).</li>
</ul>
The bid represents a further move in the consolidation of a sector that has proved resilient during the pandemic.
Sanne closed at 932p on 27 August, 1.3% above Apex's offer, and c. 11% higher than the levels the shares traded when I reiterated my long recommendation. The market believes there will be a counteroffer from Cinven.
Cinven must make an offer <a href="https://www.sannegroup.com/media/yt0jx1bc/continued-discussions-with-cinven-and-pusu-extension.pdf" target="_blank" rel="noopener">before</a><a href="https://www.sannegroup.com/media/yt0jx1bc/continued-discussions-with-cinven-and-pusu-extension.pdf" target="_blank" rel="noopener"> 5.00pm on 30 August</a>. This time Cinven will highly likely make a serious counteroffer as opposed to the previous low-ball bids, in my view. A bid could come at levels close to 950p/share, 3.2% above Apex's offer, 29.7x P/22e E (on Capital IQ consensus), which does not sound excessive. The industry is consolidating and with money inflows into alternative assets, great benefits could be captured from gaining scale. Reiterate long SNN LN.
Sanne belongs to the FTSE 250 index.

Sanne Group PLC (SNN LN) has agreed to a £1.51 billion takeover by Apex, a PE-backed competing provider of services to the financial industry.
The offer is 920p/share, 0.5% above my estimate of fair value of 915p (see Cinven Sweetens Possible Offer for Sanne ), and c. £90 mn higher than the previous prospective offer from Cinven (at 875p/share).

For an implied equity value of c. £1,509.4 mn and implied EV of £1,625.2 mn; 24.7x EV/21e EBITDA and 33.5x Fwd P/E (Capital IQ consensus).

The bid represents a further move in the consolidation of a sector that has proved resilient during the pandemic.
Sanne closed at 932p on 27 August, 1.3% above Apex's offer, and c. 11% higher than the levels the shares traded when I reiterated my long recommendation. The market believes there will be a counteroffer from Cinven.
Cinven must make an offer before 5.00pm on 30 August. This time Cinven will highly likely make a serious counteroffer as opposed to the previous low-ball bids, in my view. A bid could come at levels close to 950p/share, 3.2% above Apex's offer, 29.7x P/22e E (on Capital IQ consensus), which does not sound excessive. The industry is consolidating and with money inflows into alternative assets, great benefits could be captured from gaining scale. Reiterate long SNN LN.
Sanne belongs to the FTSE 250 index.

Smartkarma Research Team, Smartkarma

Smartkarma Research

Smartkarma Research Team

Smartkarma

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Research Reinvented

For our next Smartkarma Webinar, we have the pleasure of welcoming back Insight Provider <a href="https://www.smartkarma.com/profiles/jesus-rodriguez-aguilar" target="_blank" data-smartkarma-citation="accounts:5842" rel="noopener">Jesus Rodriguez Aguilar</a> to go over ideas in European Event-Driven. Jesus will examine offers that target FTSE 250 companies (particularly in healthcare and financial services); the real estate sector in Central and Eastern Europe; and special situations in European share classes and holding companies.
<h3>The webinar was hosted on Wednesday, 16 June 2021, 17:00 SGT/HKT.<a href="https://share.hsforms.com/1H9pFZOB-RF2J00kbvMmxcw2c5gj?zoom_webinar_id=89974520966" target="_blank" rel="noopener"></a>
</h3>
Watch the session here:
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Jesus Rodriguez Aguilar is an Event-Driven Analyst looking across sectors at opportunities arising from securities mispricing (both credit and equity), share classes, bid announcements, prospective bids, and special situations.

For our next Smartkarma Webinar, we have the pleasure of welcoming back Insight Provider Jesus Rodriguez Aguilar to go over ideas in European Event-Driven. Jesus will examine offers that target FTSE 250 companies (particularly in healthcare and financial services); the real estate sector in Central and Eastern Europe; and special situations in European share classes and holding companies.
The webinar was hosted on Wednesday, 16 June 2021, 17:00 SGT/HKT.

Watch the session here:
Or subscribe to our podcast feed and listen on the go:

Jesus Rodriguez Aguilar is an Event-Driven Analyst looking across sectors at opportunities arising from securities mispricing (both credit and equity), share classes, bid announcements, prospective bids, and special situations.

Smartkarma Webinar | European Event-Driven: Top Ideas

In my previous Insight about Sanne, I said an improved price for the intended offer by Cinven for <a href="https://www.smartkarma.com/entities/sanne-group-plc" target="_blank" data-smartkarma-citation="entities:22155:1" rel="noopener">Sanne Group PLC (SNN LN)</a>  before the PUSU deadline was highly likely (see <a href="https://www.smartkarma.com/insights/cinven-sanne-pusu-deadline-is-tomorrow" target="_blank" data-smartkarma-citation="insights:52390" rel="noopener">Cinven/Sanne: PUSU Deadline Is Tomorrow</a> ).
As it happens, on 11 June Cinven increased the price of its possible offer from 850p to 875p, which may be the prelude to the final stages to the game of brinksmanship between Cinven and Sanne.
The Board of Sanne confirmed it had consequently decided to enter into discussions with Cinven. The Takeover Panel consented to an extension of the PUSU deadline, until 17:00 on 9 July 2021.
Medium and long-term structural growth prospects for alternative assets remained strong, irrespective of the pandemic. For instance, Sanne saw a robust top line organic growth performance and good double-digit profit growth in 2020 despite a significant slowdown in its target markets.
Management suggests that Sanne could scale and expand its highly cash-generative and defensive model (indeed Sanne is a specialist in hedge funds, private debt, private equity, real assets, venture capital, as well as accounting, administration, fiduciary, governance and tax compliance services) and that its acquisitions-led strategy can surpass Capital IQ consensus estimates of £52.36 mn by 2023. Indeed Capital IQ consensus points to a double-digit revenue growth until 2023e.
On 11 June, Sanne closed at 840p, c.9% above the previous closing price (VWAP was 855p with c. £20 mn traded).
Gross spread to last prospective offer is 4%, which I think is an interesting level as there are high chances that the fifth offer was the opening gambit for the Board to engage in discussions leading to an increased offer. There may be further upside, albeit not a knock-out offer. My fair value estimate is 915p (4% above the offer).
Reiterate Buy SNN LN.
This is the latest offer by a private equity group on a UK midcap, after Aggreko, Equiniti, John Laing, Signature, UDG Healthcare (all covered here), and others such as St Mowden and Marston's. Pandemic and Brexit have had an impact on valuations and some investors are picking up bargains.

In my previous Insight about Sanne, I said an improved price for the intended offer by Cinven for Sanne Group PLC (SNN LN)  before the PUSU deadline was highly likely (see Cinven/Sanne: PUSU Deadline Is Tomorrow ).
As it happens, on 11 June Cinven increased the price of its possible offer from 850p to 875p, which may be the prelude to the final stages to the game of brinksmanship between Cinven and Sanne.
The Board of Sanne confirmed it had consequently decided to enter into discussions with Cinven. The Takeover Panel consented to an extension of the PUSU deadline, until 17:00 on 9 July 2021.
Medium and long-term structural growth prospects for alternative assets remained strong, irrespective of the pandemic. For instance, Sanne saw a robust top line organic growth performance and good double-digit profit growth in 2020 despite a significant slowdown in its target markets.
Management suggests that Sanne could scale and expand its highly cash-generative and defensive model (indeed Sanne is a specialist in hedge funds, private debt, private equity, real assets, venture capital, as well as accounting, administration, fiduciary, governance and tax compliance services) and that its acquisitions-led strategy can surpass Capital IQ consensus estimates of £52.36 mn by 2023. Indeed Capital IQ consensus points to a double-digit revenue growth until 2023e.
On 11 June, Sanne closed at 840p, c.9% above the previous closing price (VWAP was 855p with c. £20 mn traded).
Gross spread to last prospective offer is 4%, which I think is an interesting level as there are high chances that the fifth offer was the opening gambit for the Board to engage in discussions leading to an increased offer. There may be further upside, albeit not a knock-out offer. My fair value estimate is 915p (4% above the offer).
Reiterate Buy SNN LN.
This is the latest offer by a private equity group on a UK midcap, after Aggreko, Equiniti, John Laing, Signature, UDG Healthcare (all covered here), and others such as St Mowden and Marston's. Pandemic and Brexit have had an impact on valuations and some investors are picking up bargains.

On 4 May, Cinven Limited made a proposal (the third one) to acquire <a href="https://www.smartkarma.com/entities/sanne-group-plc" target="_blank" data-smartkarma-citation="entities:22155:1" rel="noopener">Sanne Group PLC (SNN LN)</a> for £1.3 billion, or 830p/share. In addition, eligible Sanne shareholders would also retain the right to receive the final dividend of 9.9p per share declared on 19 March 2021. Cinven cancelled the acquisition on 12 May 12, 2021. The proposal was unanimously rejected by the Board of Sanne on 12 May. The offer represented an implied equity value of £1,346 mn for 100% of the shares, 30.1x Fwd P/E and 4.8x P/Fwd BV.
On 29 May, Sanne said its Board had received and unanimously rejected a fourth unsolicited, nonbinding offer from Cinven for 850p.
Put-up or shut-up: Cinven has until 11 June to announce a firm intention to make an offer for Sanne or to announce that it does not intend to do so.
Sanne is trading at 20.6x EV/Fwd EBITDA, 4.5x P/Fwd BV and 16.7x P/Fwd CFPS.
Capital IQ consensus median TP is 750p and the shares offer a 1.9% dividend yield.
I use a DCF to value the firm (Capital IQ consensus estimates, WACC 5.8%, g 1.5% tax rate of 20%). My estimate of fair value is 915p, a c. 19% upside to the last closing price.
I believe that the Board's rejection is justified, given the quality of Sanne's business, time needed to digest the latest acquisitions and standalone prospects.
Recommendation is long Sanne, TP 915p. Upside risk may come from a knock-out offer from Cinven.

On 4 May, Cinven Limited made a proposal (the third one) to acquire Sanne Group PLC (SNN LN) for £1.3 billion, or 830p/share. In addition, eligible Sanne shareholders would also retain the right to receive the final dividend of 9.9p per share declared on 19 March 2021. Cinven cancelled the acquisition on 12 May 12, 2021. The proposal was unanimously rejected by the Board of Sanne on 12 May. The offer represented an implied equity value of £1,346 mn for 100% of the shares, 30.1x Fwd P/E and 4.8x P/Fwd BV.
On 29 May, Sanne said its Board had received and unanimously rejected a fourth unsolicited, nonbinding offer from Cinven for 850p.
Put-up or shut-up: Cinven has until 11 June to announce a firm intention to make an offer for Sanne or to announce that it does not intend to do so.
Sanne is trading at 20.6x EV/Fwd EBITDA, 4.5x P/Fwd BV and 16.7x P/Fwd CFPS.
Capital IQ consensus median TP is 750p and the shares offer a 1.9% dividend yield.
I use a DCF to value the firm (Capital IQ consensus estimates, WACC 5.8%, g 1.5% tax rate of 20%). My estimate of fair value is 915p, a c. 19% upside to the last closing price.
I believe that the Board's rejection is justified, given the quality of Sanne's business, time needed to digest the latest acquisitions and standalone prospects.
Recommendation is long Sanne, TP 915p. Upside risk may come from a knock-out offer from Cinven.

Japan TMT Analyst

Pelham Smithers

Market Intel on Asian Tech with a Japan focus

Pelham Smithers Associates

Founded in 2009, Pelham Smithers Associates (PSA) provides market intelligence on Asian technology, focusing in particular on Japan. The industries covered by our team of specialists are: consumer electronics, telecomms, pharmaceuticals, internet, electronic parts and materials, automotive technology, retail and capital goods. 

Research is provided by the following:
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Joel Scheiman: Electronics materials / components
Julie Boote: Autos
Will Nestuk: Capital goods, machinery & transportation equipment parts
Thao Nguyen: eCommerce, internet content, marketing & advertising

Thematic (Sector/Industry)

The vote to leave the European Union will have both shorter and longer term impacts on the UK economy. There will be a shorter term impact on demand and, separately, on potential supply. The longer term one will depend largely on the policy response. Any decline in demand can in principle be offset by a lower exchange rate or by fiscal or monetary stimulus. A reduction in potential supply can only be offset, after a delay, by increased investment. This is therefore the key challenge and policy success will be determined by the extent to which investment is stimulated and adequate long- term growth thereby assured. In addition, there is also likely to be a reduction in living standards through a deterioration in the terms of trade as a result of weaker sterling, but this was in any event likely as the exchange rate appeared overvalued before the vote.

The vote to leave the European Union will have both shorter and longer term impacts on the UK economy. There will be a shorter term impact on demand and, separately, on potential supply. The longer term one will depend largely on the policy response. Any decline in demand can in principle be offset by a lower exchange rate or by fiscal or monetary stimulus. A reduction in potential supply can only be offset, after a delay, by increased investment. This is therefore the key challenge and policy success will be determined by the extent to which investment is stimulated and adequate long- term growth thereby assured. In addition, there is also likely to be a reduction in living standards through a deterioration in the terms of trade as a result of weaker sterling, but this was in any event likely as the exchange rate appeared overvalued before the vote.  

United Kingdom

Sanne Group PLC specializes in providing outsourced corporate and fund administration, reporting and fiduciary services. The Company operates in a range of businesses, including debt, real estate, private equity, corporate and institutional , executive incentives and private client.

Sanne Group PLC (SNN LN)

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