Panmure Gordon says firm could be worth up to 236p, 15% more than TVH's offer
Companies: Lavendon Group
Belgian construction firm Thermote & Vanhalst (TVH) has launched a formal takeover bid for AIM-listed Lavendon Group, offering c.£350m for the UK-based parts and equipment rental business.
It is the second time TVH has made an attempt to acquire Lavendon, after its failed approach in 2011, and today's offer also looks to have failed initially, as management recommended that shareholders should reject the offer.
In an announcement made to investors this morning, Lavendon's management said that following the negotiations, TVH offered 205p/share for entire issued share capital, a 47% premium to Monday's close of 139p:
Following further negotiations and once the limited due diligence was complete, TVH sought the support of Lavendon's major shareholders. Following discussions with these shareholders, TVH indicated that a price of 205 pence per Lavendon share was the maximum price it would be prepared to pay.
TVH secured irrevocable support for the deal from GVQ and Unicorn, with a combined holding of 12.3%, however, Lavendon says when it consulted with some shareholders approached by TVH, it found that the level of support anticipated "was not forthcoming", so the Board unanimously concluded not to recommend the offer.
"...due to concerns over the significant execution risk and the potential disruption to Lavendon's business. The Board subsequently encouraged TVH to approach additional shareholders to establish whether TVH could secure further support but they declined to do so."
TVH says it wants to buy the firm to help target its Middle Eastern markets, with Pascal Vanhalst saying it would be a big step forward for TVH:
“The acquisition of Lavendon would represent a significant step forward in the growth of our specialised rental activities.
It would [enable TVH equipment to]... become active in new markets such as the UK, the Middle East and France. With Lavendon’s vast rental know-how and focus on safety, the customers of the enlarged group would clearly benefit.
Mr Vanhalst says TVH had sought to announce the offer with Lavendon's support, and that the two companies had worked together to reach the price of roughly 200p.
However, in a contradictory account to Lavendon's, he says that due to Lavendon's concerns around deliverability of a scheme of arrangement, concerns he says TVH proposed to change, the Board of Lavendon were unwilling to recommend the offer.
“TVH believes the offer fully values the company and its prospects and has therefore decided to release this firm offer announcement to allow Lavendon shareholders to decide on the merits of the offer.”
Speaking about today's announcement, broker Panmure Gordon said that whilst it was easy to see how TVH had come to value Lavendon at 205p, it believed the company to be worth around 236p and said it expected an offer of 215p-220p would be enough to tempt shareholders:
"The offer (+47.5% premium to last night's close) values the business on a forward EV/EBITDA of 4.7x, which compares with 4.6x forward multiple over the last three years...
The offer values the business on price to book (ex-IFA) of 1.6x. This compares with 1.1x over the last 12 months and 1.7x over the last 36 months. Therefore, it is quite easy to see how TVH has valued its offer.
Panmure said Lavendon's recent Q3 trading update indicated positive momentum in the UK and stated its belief that the business's forward P/E of 10x (in-line with the five-year average) should value the firm at 236p.
"Having said that, any person/corporate acquiring Lavendon today is buying the business with a degree of turnaround risk. Consequently, we appreciate why a rational price TODAY would be at a discount to the 236p..."
Panmure also stressed that the prospects of a counter bid from another quoted player are "slim" but that the vertical has had private equity interest historically.
Ahead of expectations
On the 15 November, CEO of Lavendon, Don Kenny, said the board was encouraged by trading performance to date, and as a result of favourable exchange rates the group's results were expected to be marginally ahead of expectations for 2016.
Lavendon's share price jumped 47% in early trading before settling 40% above Monday's close.