Sanne investors sanguine about loss

It’s been a busy old time for Sanne (SNN), the provider of back-office services for private equity firms. In little more than a year, it bought two Guernsey-based competitors – PEA and a fund administration arm owned by Praxis IFM – as well as a Texas-based company offering similar services known as Strait Capital.

More significantly, it became the subject of a bidding war itself with Bermuda-based Apex Group eventually trumping rival suitor Cinven with a 920p per share offer that values Sanne at £1.51bn – a 53 per cent premium to its price before the first offer was made.

So investors seem pretty sanguine about the fact that it declared a pre-tax loss for 2021. After all, the company attributed £21.7mn of more than £50mn of one-off costs it incurred to the Apex deal, which is taking longer than expected to complete. Apex now expects to tie up the remaining loose ends by the end of June, although this could slip into the third quarter.

Sanne's shares trade at 910p, not too far below the offer price, suggesting that most shareholders are not expecting a nasty surprise.

Underlying profit growth of 21 per cent last year ran ahead of revenue expansion and the amount of new business generated rose by almost 50 per cent. This momentum has carried over into 2022, the company said.

Indeed, while fundraising on equity capital markets dropped by two-thirds in the first quarter to a six-year low of $120.7bn, the value of private equity-backed deals increased by 12 per cent to $228.3bn as of 17 March, according to Refinitiv data.

Demand for investments in alternative assets “is as high today as we have ever seen it”, Sanne’s chairman Rupert Robson said. This sums up why the various bidders were willing to pay so much for it. Accept.

Last IC View: Hold, 795p, 7 Jun 2021