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UK & Ireland public-to-private bid premiums: Deborah Yates reviews activity in the UK and Ireland over the last six months

The first six months of 2002 undoubtedly confirmed expectations of a sluggish start to the year for both the markets and M&A in general. In this survey we examine the premiums paid for those firms with either a full London or AIM listing, that no longer wanted to be exposed to the highs and lows of a stock market listing.

This article once again (see February 2002 for the last six monthly review) concentrates on public-to-private deals involving UK or Irish companies, completed during the first half of the year. In it the average premiums paid over the target share price one day or one month before the offer or bid talks were announced are examined in addition to looking at the premiums paid at an individual deal level.

The first half of 2002 saw a vast decline in the volume of completed public-to-private deals when compared to what had already been a tough year in 2001. Whereas last year resulted in 19 and 12 eligible public-to-private offers during the first and second halves, respectively, the first half of 2002 witnessed only six completed deals. Those six deals generated average one day and one month premiums of 18 per cent and 27 per cent, respectively. This was down on the respective one day and one month averages of 30 per cent and 32 per cent, paid in the second half of 2001.

Breaking the half yearly figures down further to show the quarterly averages, four deals were completed during the first quarter of 2002, generating average one day and one month premiums of six per cent and 22 per cent, respectively. The average one-day premium of six per cent registers an all time low in terms of the quarterly average one-day public-to-private premiums.

The second quarter saw deal volume fall even further as the two completed public-to-private deals generated average one day and one month premiums of 42 per cent and 38 per cent, respectively.

The bar and restaurant industry was responsible for the highest one day and one month public-to-private premiums of the first half. Interestingly, the highest premiums were paid on two separate transactions. The highest one-day premium was paid on the offer for AIM-listed Gaucho Grill, the London-based restaurant chain, which owns nine restaurants in the UK, nine in Switzerland and 23 in The Netherlands.

Pan European Restaurants, formed by chief executive Zeev Godik, the Lewis family of South Africa and Furtado Investments, paid a one day premium of 67 per cent for Gaucho, which specialised in Argentinean beef. The chain, which had been badly affected by BSE, the foot and mouth crisis and a fall in the number of people visiting London suffered a final blow when March 2001 brought with it the imposition of an export ban on Argentinean beef.

The highest one month premium was paid by management-led Full Circle Investments on its GBP7 million offer for London-based bar and restaurant operator Capital Bars, formerly Break For The Border. Full Circle, owned by William and Desmond O’Dwyer, paid a one-month premium of 92 per cent and a one-day premium of 56 per cent.

Comparing these quarterly figures to the average one day and one month premiums paid by the acquisitive trade buyers during the same period, it is evident that standards were reversed. Shareholders involved in the nine trade acquisitions during the first quarter, fared substantially better than their public-to-private counterparts when the nine offers were concluded for average one day and one month premiums of 53 per cent and 58 per cent, respectively. This was reversed in the second quarter when the average one day and one month premiums paid by the 12 trade buyers dipped below the equivalent public-to-private premiums and fell to 29 per cent and 22 per cent, respectively.

Despite the swap, looking across the entire first half of 2002, the average one day and one month trade premiums were ultimately higher and resulted in one day and one month premiums of 39 per cent and 38 per cent, respectively.

Public-to-private transactions accounted for 22 per cent of all the eligible offers for UK public companies during the first half of 2002, which as a whole produced average one day and one month premiums of 35 per cent.

Despite the slow start, the pace began to accelerate towards the latter part of the first half with three public-to-private deals still pending at the end of June. The offers by Electra Partners for Kunick, the amusement machine and leisure facilities management firm, Alchemy’s recommended offer for FCX International, the specialist manufacturer and distributor of flow control products, were two deals that although pending at the close of the survey period have subsequently closed. Also pending at the end of June was a rare event in the public-to-private arena, a hostile bid in the form of Duke Street Capital’s offer for health club operator, Esporta. Although none of these three deals were included in Q1 and Q2 figures due to their pending status, there is a glimmer of hope that public-to-private activity is on the up.

Alchemy Partners was kept busy on a further public-to-private deal earlier on in the year when it provided an escape route for overstretched software company Cedar. Redac, an Alchemy-backed vehicle, took Cobham-based Cedar, which at its peak was valued at nearly GBP1 billion, private. The price tag was just GBP3.8 million. Cedar, in an attempt to broaden its primarily British reach, had been through an ambitious acquisition programme involving 12 acquisitions in four years and suffered the consequences when the markets turned.

Is this surge in public-to-private activity a sign of revival or just the logical conclusion for smaller firms continuing to face the prospect of attempting to operate and raise funds in a disinterested market? Even if firms at the smaller end of the spectrum decide to weather this particular storm, will they ever regain shareholder popularity?