UK tipped for take-private boom as sterling takes a pounding; Ratos makes move for Semcon

Good morning Eurohubsters, Craig McGlashan here with the opening Dealflow of the week.

I hope you had a nice weekend. I was at a school reunion in Scotland on Friday where a friend visiting from the US found the drinks getting cheaper as the evening went on. After plummeting that day, this morning the pound dropped further, hitting an all-time low against the dollar. Like the drinks at the party, UK assets are looking pretty cheap to US buyers right now.

Tax cuts. Sterling reached its lowest level against the dollar since 1985 last Friday, after UK chancellor Kwasi Kwarteng announced the biggest tax cuts in 50 years, which will place extra demands on borrowing. It then hit a record low of close to $1.03 in early Asia trading this morning after Kwarteng promised more tax cuts over the weekend.

“I’m confident we will see a lot of take-private activity in the UK due to the weak pound,” one private equity lawyer told me – and that was before Friday’s tax cut announcement.

Are the record lows making the UK a more attractive proposition? I’d love to get your thoughts. Drop me a note at craig.m@peimedia.com

Scrutiny. While the strong dollar might give them some extra purchasing power, US private equity firms are finding themselves under pressure in other ways. The Securities and Exchange Commission is making calls to private equity firms to find out if they adjust customer fees when investments sour, Bloomberg reported.

Meanwhile, Citi is planning to cut its subscription-line financing book from $65 billion to $20 billion, according to people familiar with the matter spoken to by the Financial Times. Private equity firms are among the largest users of the financing.

Trumped. Away from euros and sterling, Ratos made a cash offer this morning for Gothenburg-headquartered engineering services and product information firm Semcon that values the company at around Skr2.844 billion ($252 million; €260 million).

The offer of Skr157 per share trumps an earlier offer of Skr149 per share made by Etteplan on 23 August. It offers a premium of around 6.2 percent compared to the closing price of Semcon on Nasdaq Stockholm at the end of last week and 39.1 percent to the volume-weighted average share price over the last 30 trading days up to and including 22 August, the day before Etteplan made its offer.

Semcon’s board of directors has unanimously decided to recommend that shareholders accept the offer.

“The acquisition of Semcon is another step in Ratos’ strategy towards a more homogeneous group, which includes further acquisitions and divestments,” said Jonas Wiström, president and CEO of Ratos, in a statement. “If the shareholders of Semcon accept our offer and the acquisition goes through, Ratos’ indebtedness would still be within out financial targets. Ratos is facing the increasing uncertainty in the world, with high inflation and a deteriorating economy going forward, by maintaining a strong financial position.”

The acceptance period for the offer is expected to begin on Tuesday and will end “around 27 October”, according to a statement from Semcon.

The other bidder, Etteplan, is an engineering services company headquartered in Espoo, Finland. The Semcon board withdrew its previous recommendation for shareholders to accept Etteplan’s offer.

Ratos is a private equity firm headquartered in Stockholm.

Tripe-play. Tenzing- and Livingbridge-backed CitNOW Group announced that it has acquired three companies. They make it four bolt-on acquisitions for the company since Livingbridge’s investment and Tenzing’s reinvestment in CitNOW Group in July.

The company has bought St Neots, UK-based Auto Imaging, a provider of imaging and video services to the motor industry. Auto imaging is joined by AutoSLM, another UK company, headquartered in Wakefield. It provides systems for dealers to improve sales conversion rates by optimising the efficiency and effectiveness of their lead management processes. CitNOW has also picked up Dealerdesk, a multichannel customer relations management hub based in Hamburg.

The acquisitions build on Wokingham, UK-based CitNOW’s prior acquisitions of Web1on1 in the Netherlands, Dealerweb, Real Time Communications, Tootle and Reef Business Systems in the UK, and Quik in the US.

Flatlining. One deal that won’t be going ahead, however, is the purchase of Australia’s Ramsay Health Care by a KKR-led consortium.

In mid-September, we reported how the deal for the Sydney-headquartered firm – which has a large presence in Europe – was floundering, as the KKR group declined to improve its latest offer.

This morning, Ramsay said in a statement that since that decision, it had been in talks with the group about whether a new proposal would be possible, but “through this engagement it has become apparent that the Consortium is unable to provide a new proposal at this time”, leading them to cancel the talks.

Ramsay first announced in April that the KKR-led group had proposed to buy 100 percent of its shares at A$88.00 ($57.38; €59.25) cash each, valuing the firm at around A$20.1 billion.

Ramsay released its financial results for the 12 months to the end of June on 26 August. EBITDA at the group level was A$1.8 billion, down nearly 11 percent. “Earnings were impacted by the ongoing disruption caused by the high numbers of covid cases in the community on activity levels, case mix and costs,” the company said.

The KKR group withdrew the proposal in late August but “remained committed to an alternative structure”, according to Ramsay. Under an alternative proposal, Ramsay shareholders would have been able to elect to receive 100 percent cash consideration at the A$88.00 price for 5,000 of their shares, with the price for each additional share sold being A$78.20 in cash and approximately 0.22 shares in Ramsay Santé, the country’s French business that it co-owns with Crédit Agricole Assurances.

But the Ramsay Board declined that proposal in late August.

That’s it from me – I’ll be with you again tomorrow.

Cheers,

Craig