Interactive Investor

UK Plc attracts more bids from wealthy overseas investors

7th June 2022 14:25

Graeme Evans from interactive investor

Domestic companies have long been a target for foreign investors with cash to splash, and now is no different as more well-known companies attract takeover offers. But the road to completion is not always straightforward.

Deep-pocketed private equity investors continue to target UK assets after the waste management business Biffa (LSE:BIFF) today revealed a takeover approach worth £1.4 billion.

The board of FTSE 250-listed Biffa is minded to back the 445p a share proposal from US-based Energy Capital Partners, although if a counterbid emerges one City analyst sees a price of 500p a share as “justifiable”.

Peel Hunt’s Andrew Shepherd-Barron said the current takeover price captures only some of Biffa’s value, but he suspects that risk-averse investors might be tempted to accept given the emergence of a potentially significant tax dispute.

Biffa revealed today that it is in disagreement with HMRC over landfill tax classifications for the period between 2016-20. It strongly refutes the concerns but said the potential liability could range from £170,000 up to a maximum of £153 million.

Peel Hunt notes a £50 million settlement would cost Biffa 20p per share.

Shepherd-Barron points out that today’s offer price is only 10% more than where the shares traded in the second half of 2021, adding that the earnings multiple of 8.2 times compares with the sector’s long-run rating of seven times.

He said: “Acquisition prices in the industry vary widely, but this is towards the bottom end. We would have seen nine times or more (500p per share) for Biffa as fairer, to reflect its market status and growth potential. The landfill tax dispute does cloud the picture.”

A takeover of Biffa would continue consolidation of the waste management sector as firms bulk up to stay competitive amid a volatile pricing and regulatory landscape.

Biffa has played its part by spending £122.1 million on rival Viridor last summer and £260 million overall on deals in industrial and commercial waste since its 2016 flotation.

It is now the UK’s largest player across business sectors including manufacturing, retail and hospitality, while its household waste division provides waste and recycling collections alongside street cleaning and other services. The whole business employs 9,000 people and boasts a fleet of 2,900 collection vehicles.

Energy Capital Partners, Biffa’s potential suitor, is focused on areas including environmental infrastructure, where recent investments include a provider of oil management services to 32,000 restaurants and food service outlets across the US.

Other infrastructure investors currently circling UK assets include I Squared after it recently tabled a proposal worth £1.2 billion to buy FirstGroup (LSE:FGP), which operates Avanti West Coast, Great Western Railway and several major city bus services. Similar buyers have already targeted deals for Stagecoach (LSE:SGC) and Sweden’s Nobina.

However, I Squared is facing an uphill battle after the Sunday Times said FirstGroup’s largest shareholder Schroders criticised the offer as being “unattractive” and failing to reflect the scarcity value of one of the few big UK bus and train groups.

The latest offer is priced at 118p a share, plus 45.6p conditional on the amount that FirstGroup receives from the sale of its US operations.

FTSE 250-listed FirstGroup has advised shareholders to take no action, while analysts at Peel Hunt and Liberum have also criticised the offer price.

Peel Hunt added: “We see the potential for a competing offer from a similar type of investor, or even from an operator looking to scale up and enter the liberalised public transport markets of the UK and those liberalising in Europe and other parts of the world.

“FirstGroup can also deliver significant value by continuing to execute on its strategy.”

A standalone future now looms for Ted Baker (LSE:TED), meanwhile, after the fashion retailer last night lost its preferred bidder, believed to be the Reebok owner Authentic Brands.

Ted Baker said the party’s decision to walk away had nothing to do with due diligence, adding that it would now revisit other approaches it has received over recent weeks.

Recent annual results showed progress in the company’s transformation plan under chief executive Rachel Osborne, with underlying losses reduced by 35% to £38.4 million. The shares, which performed strongly in 2021 before falling back on retail uncertainty, today gave up much of their bid premium by dropping 26.2p to 110.6p.

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