Innovalues (IP SP) - Maybank Kim Eng 2016-10-26: First Low Offer On The Table

Innovalues (IP SP) - Maybank Kim Eng 2016-10-26: First Low Offer On The Table INNOVALUES LIMITED 591.SI

Innovalues (IP SP) - First Low Offer On The Table

Hold on or buy more depending on your risk profile 

  • Innovalues has received a privatisation offer of SGD1.01 a share from Northstar Private Equity, valuing it at 9x historical EV/EBITDA and c.18x P/E. This is at the low end of our SGD1-1.20 (9-11x EV/EBITDA) valuation range. 
  • Recommended action: The shareholders’ circular will only be sent out in two weeks, following which the shareholder and court meetings will likely take place in Jan 2017. There will be two months for existing shareholders to consider it and await further developments. More aggressive investors could also buy below the offer price to bet on the possibility of competing bids. The key risk is failure to secure 75% of minority shareholders to approve.

Northstar offers two takeout options 

  • PE firm Northstar is proposing to acquire Innovalues at SGD1.01 a share via scheme of arrangement. There will be two options for shareholders, either taking all-cash or electing for SGD0.61 in cash and 1 HoldCo share valued at SGD0.40 for each Innovalues share they own. 
  • Four company insiders owning c.39% in total will either reinvest in HoldCo or accept the cash + securities offer. Note that HoldCo will be a privately-held vehicle.

At the low end of our valuation range 

  • Northstar is valuing Innovalues at 9.1x historical EV/EBITDA and 17.8x historical P/E. This is at the low end of our fair valuation of 9x-11x EV/EBITDA, which is based on comparable M&A transactions since 2000.
  • Northstar’s offer looks low compared to Unisteel, a company very similar to Innovalues that was privatised by KKR in 2008 for 11.8x EV/EBITDA.
  • PE-takeout valuations may have come down in the past 15 years but Northstar may wish to sweeten the offer to ensure success.

Any chance of a competing offer? 

  • While this is not something we can predict with any certainty, we note that Innovalues’ shareholding structure does not preclude a competing offer from succeeding, if the price offered is higher than Northstar’s. A full 45% of shares outstanding are in the hands of retail investors. 
  • We conclude that it is possible for a counter bid to succeed if the price is better.

Gregory Yap CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-10-26
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 1.15 Same 1.150