Private Equity bidder seals bid with mandatory offer

Private Equity bidder seals bid with mandatory offer

Private equity group Hanover Active Equity Fund (Hanover) consolidated its takeover of a company by triggering a mandatory offer following an unsolicited approach for the target company from an unnamed third party.

Hanover announced a recommended bid for Brady plc on 14 October 2019 and had extended the closing date to receive acceptances from 18 November 2019 to 29 November, as they had not met the 50% acceptance condition.

On 18 November, Brady announced that it had received a possible offer from an unnamed third party. The same day, Hanover increased its offer for Brady from £8.3 million to £15 million, which was supported by Brady’s board. Later in the day Hanover disclosed that it had purchased further shares in Brady, building their stake to 46.1% and thus triggering Rule 9 of The City Code on Takeovers and Mergers. This meant that Hanover now had to make a mandatory offer for the remaining shares. This strategy would compel shareholders to consider Hanover’s offer first and would therefore take the initiative away from the unnamed bidder.

Hanover later entered arrangements to stakebuild further. On 20 November 2019 they owned 55.56% of Brady’s issued share capital. This meant that the 50% acceptance condition was met, effectively sealing Hanover’s position.

On 5 December Hanover announced it had acquired or agreed to acquire 80.1% of Brady’s shares. This date being the closing date of the mandatory offer, Hanover urged remaining shareholders to accept the offer. At the time of writing Hanover made no further announcement in relation to acceptances received.

Brady was most likely sought after in this manner because they provide trading and risk management software to global commodity and energy markets, and they are the largest such business in Europe. Their software is used by commodity traders globally, especially in metals trading. The company however required a cash injection for working capital and financing of £15 million to carry out its market expansion. Brady confirmed that it was advancing funding initiatives prior to 30 November 2019 to get access to the money required for working capital purposes.

Although a leading business, a lack of investment has held the company back from growing, and recent changes in share price indicates that it is unlikely to raise the finance required on the public market. The share price dropped from 56.50p to 33.50p in the first half of August 2019, and from 21 August 2019 to 4 October 2019, the price fell from 33.50p to a low of 3.75p. The share price fell so dramatically because Brady had warned off an 18% reduction in revenue in 2019 owing to a lack of expansion.

Brady recommended the offer from Hanover as the private equity group has experience in investing in technology companies. It also provides the company certainty in receiving the funding it requires.

Market Tracker will continue to monitor this transaction as it develops.

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