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BGF responds to Apax Partners LLP takeover offer for Kin & Carta Plc
BGF, one of the largest dedicated investors to smaller companies in the UK, responds to Apax Partners LLP takeover offer for Kin & Carta Plc (“Kin & Carta“).
BGF, as a holder of approximately 3.0% of Kin & Carta’s share capital, has considered the takeover offer announced on 18 October 2023. BGF’s view is that the offer price of 110p per share does not reflect sufficient value for Kin & Carta.
We note the price of the bid represents a 68% discount to Kin & Carta’s peak price in 2021 (348p, on 11 November 2021), and whilst the business has faced market and business headwinds in the intervening period resulting in trading downgrades, we believe that shareholders should take a longer-term view on the potential of the company to recover its profitability, given the inherent operational gearing in the business model.
Based on management’s narrative in recent trading updates, we believe that such a recovery should be achievable, and should this occur we expect that the business would also benefit from trading at a higher valuation multiple. This would also serve to make prospective acquisitions more accretive to shareholder value, offering an opportunity to expand the business inorganically. With a patient outlook, we believe shareholders could feasibly see returns that are multiple times higher than the current offer.
In our view, the bid is highly opportunistic with the bidder picking a point in time where trading profitability is depressed, and further to this applying an inadequate valuation multiple with reference to the longer-term growth potential of the business, scope to act as a ‘platform’ for further strategic acquisitions to supplement organic growth, and with reference to comparable transaction multiples in the space. We note, however, that the Board is unanimously recommending acceptance of the offer which we do not believe adequately represents shareholder interests.
We also highlight Coast Capital Management’s open letter to shareholders, published on 20 October 2023, and agree with many aspects of their analysis.
BGF will consider any takeover approach on its own merit. We believe, however, that the Apax Partners LLP takeover offer materially undervalues Kin & Carta’s shares today.
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