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The current turbulence in the debt markets, and the worldwide trend towards rising interest rates, is provider succour for those who think that the equity markets need taking down a peg or two. Share prices have been inflated for months, they might argue, not by any fundamental factor such as value, but by a long boom in mergers and acquisitions that has created a 'greater fool' market.
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For instance, investors buy Sainsbury's shares not because they think the supermarket group deserves to be rated at 22 times earnings, but because they think some rich Arabs might come and offer 25 times earnings to buy it. Cheap finance has sustained this M&A binge, and now the punch bowl is being removed. The bears are just waiting for a big deal to fall apart.
A small one already has, though. This week, Civica said that discussions with a private equity fund regarding a takeover had not progressed to a suitable offer because of the turbulence in the markets. All contact has been terminated, so it sounds pretty, er, terminal. This is noteworthy, but it's small beer really. Civica is a £135m software company providing services and products to public-sector clients like local authorities and police forces.
Could telecoms services provider Pipex be back on the block? The group had been conducting a strategic review for what seemed like forever, but most investors assumed that the sale of the broadband unit to Tiscali marked the end of it. Now, executive chairman Peter Dubens has set up his own private equity fund, named Oakley Capital, to consolidate the telecoms industry. Tantalisingly, he's made references to both private and 'undervalued' public companies. The fact that the strategic review at Pipex has gone on so long, plus the fact that Mr Dubens is being very coy both about his own position at Pipex and what his fund might do next, suggests that he may take the group private. Goldman Sachs values Pipex's remaining businesses at £200m, certainly a sum within reach of Oakley, assuming it gets the capital it is seeking. For more on this story, click here.
Consolidation at the smaller end of the mining sector continued apace this week as Mwana Africa finally put out an offer document for Southern Era Diamonds, a takeover that it first signalled back in March. Mwana already owns 9.5 per cent of Southern Era, which it acquired from mining behemoth BHP Billiton, and has secured provisional acceptance for its offer from a further 30 per cent of shareholders. There is obvious strategic sense in the deal; Mwana wants to build up a big position in diamond exploration, and Southern Era's assets in the Democratic Republic of the Congo are a good fit with its own. It took over Gravity Diamonds earlier this year, for similar reasons. Doing business in the DRC might not be a walk in the park, but there again, most of Mwana's existing production is in Zimbabwe, an economy close to complete implosion. SouthernEra, a Toronto-listed company, has previously rejected Mwana's advances but has yet to issue a recommendation since the circular was mailed.
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-IC-1.9.0c-prod - 15/05/2009 11:00:33 - stuart.turner
