- Cinven must make a firm offer by 5pm on Friday
- Its fourth unsolicited approach of 850p per share was rejected last month
As a provider of back-office services to the private equity industry, Sanne (SNN) prides itself on understanding and second-guessing the priorities of well-heeled fund managers.
This week should reveal whether the FTSE 250 constituent has held its nerve with Cinven, one of the biggest UK players in private buyouts, ahead of a formal takeover offer deadline that lapses on Friday 11 June.
The game of brinksmanship between the two parties began on 14 May, when Sanne confirmed a Sky News report that its board had unanimously rejected a third, 830p-a-share non-binding proposal from Cinven – then a 38 per cent premium to the undisturbed market price. This was accompanied by boilerplate assertions that the offer was opportunistic and failed to reflect the group’s longer-term prospects as a standalone business.
A fortnight later, another all-cash indicative bid arrived from Cinven – this time at 850p per share, valuing the company at £1.38bn. Again, it was rejected, with management reiterating its confidence in the company’s ability to go it alone and the “scarcity value inherent in its unique, global platform”.
Perhaps sensing further price action in the shares, several third parties then bought into the stock. These included Dublin-based Blacksheep Fund Management, which disclosed a 3.3 per cent stake in Sanne on the same day Cinven’s fourth bid was made public.
The group was joined by several other blue-chip institutional investors, including Allianz Global, BMO and the Kuwait Investment Authority, according to financial data provider FactSet.
Since then, the stock has edged higher to trade at 795p, as investors weigh the chances of a final better offer or a rival bid.
A competing offer would need to be punchy. Analyst consensus places EPS at 27.5p in 2021, meaning that the latest bid equates to 31 times forward earnings. That suggests Cinven is convinced by the consistency and potential future growth of Sanne’s client income, as well as its market position.
For its part, while Sanne’s management clearly thinks its own acquisitions-led strategy can surpass City expectations for free cash flow of £52.3m by 2023, performance over the next three years will need to be exceptional to justify the rejection of the latest tabled offer.
Of course, in stating that Cinven is “well short of that threshold for us to fully engage”, Sanne may be holding out for just a little more – perhaps a bid closer to 875p per share. Some investors, mindful of several years of mixed performance and the general drift in the shares since reaching a high of 837p in October 2017, will be itching for the board to bank gains now.
Indeed, the small increase between the third and fourth bids suggests a fifth approach is unlikely to blow the lights out. But analysts point to the potential global expansion of Sanne’s model and premiums paid for privately-held US competitors as signs that a bigger bid could come.
Berenberg, for one, sees long-term value at 1,030p. That looks quite rich, but when market appetite for cash-generative, defensive and scalable double-digit growth stories is this hot, it probably pays for investors to stay in. Hold.
Last IC View: Hold, 578p, 19 Mar 2021
