European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

The tender offer period for <a href="https://www.smartkarma.com/entities/cerved-group-s-p-a" target="_blank" data-smartkarma-citation="entities:21171:1" rel="noopener">Cerved Group S.p.A. (CERV IM)</a> has started, and will end on 5 August. On 16 July, the first day, the shares closed at €10.04, 5.7% above the offer price and in line with my prior TP of €10/share (see <a href="https://www.smartkarma.com/insights/cerved-group-castor-srl-sweet-opportunity-in-loans-gone-sour" target="_blank" data-smartkarma-citation="insights:48990" rel="noopener">Cerved Group - Castor Srl: Sweet Opportunity in Loans Gone Sour</a>).
The Board of Cerved says that the offer from Castor Bidco is inadequate and does not take into account the growth prospects of Cerved, sale of Cerved Management Group, synergies, the premium is low and the bid opportunistic.
Activist investor Berry Street has said it will not tender its 3% stake at the current bid price. Berry Street previously held 1% of <a href="https://www.smartkarma.com/entities/kaz-minerals-plc" target="_blank" data-smartkarma-citation="entities:21999:1" rel="noopener">KAZ Minerals (KAZ LN)</a>, whose takeover offer was increased by c. 36%.
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Castor stated in the announcement that in the event that, following the offer, the offeror comes to hold a total stake greater than 90%, but lower than 95%, the offeror will not restore a free float sufficient to ensure regular trading.
If as a result of the offer, the offeror holds at least 95% of the shares, it will exercise its right to purchase the remaining Cerved Shares. If the right to purchase is exercised, Borsa Italiana will order the suspension from listing and/or the delisting of Cerved Shares. If several shareholders collectively own above 5% of the share capital, they may block a hypothetical squeeze-out.
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I revise upwards my initial €10.0/share valuation of Cerved on a standalone basis. By using inputs from Capital IQ consensus (revenue, EBITDA, Capex), WACC of 8%, 11.5x EV/EBITDA exit multiple and g=2%, my new estimate of fair value on a standalone-basis is €11.04/share, this is a c.10% upside to the current market price and c. 16% above the current offer price. For comparison, mean TP on Capital IQ consensus is €10.23/share.
The market awaits a sweetened offer, which is highly likely in my view. An increase would be justified by better prospects and synergies, which equally split could be worth up to €0.455/share and there is some PE interloper risk. Long CERV IM.
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The tender offer period for Cerved Group S.p.A. (CERV IM) has started, and will end on 5 August. On 16 July, the first day, the shares closed at €10.04, 5.7% above the offer price and in line with my prior TP of €10/share (see Cerved Group - Castor Srl: Sweet Opportunity in Loans Gone Sour).
The Board of Cerved says that the offer from Castor Bidco is inadequate and does not take into account the growth prospects of Cerved, sale of Cerved Management Group, synergies, the premium is low and the bid opportunistic.
Activist investor Berry Street has said it will not tender its 3% stake at the current bid price. Berry Street previously held 1% of KAZ Minerals (KAZ LN), whose takeover offer was increased by c. 36%.

Castor stated in the announcement that in the event that, following the offer, the offeror comes to hold a total stake greater than 90%, but lower than 95%, the offeror will not restore a free float sufficient to ensure regular trading.
If as a result of the offer, the offeror holds at least 95% of the shares, it will exercise its right to purchase the remaining Cerved Shares. If the right to purchase is exercised, Borsa Italiana will order the suspension from listing and/or the delisting of Cerved Shares. If several shareholders collectively own above 5% of the share capital, they may block a hypothetical squeeze-out.


I revise upwards my initial €10.0/share valuation of Cerved on a standalone basis. By using inputs from Capital IQ consensus (revenue, EBITDA, Capex), WACC of 8%, 11.5x EV/EBITDA exit multiple and g=2%, my new estimate of fair value on a standalone-basis is €11.04/share, this is a c.10% upside to the current market price and c. 16% above the current offer price. For comparison, mean TP on Capital IQ consensus is €10.23/share.
The market awaits a sweetened offer, which is highly likely in my view. An increase would be justified by better prospects and synergies, which equally split could be worth up to €0.455/share and there is some PE interloper risk. Long CERV IM.


Trading Above Terms at the Start of the Tender Offer Period

ION Capital and Singapore's sovereign wealth fund GIC <a href="https://company.cerved.com/sites/company.cerved.dev/files/102%20vF%20ENG.pdf" target="_blank" rel="noopener">have offered to acquire</a> Italian financial services group <a href="https://www.smartkarma.com/entities/cerved-information-solutions-s" target="_blank" data-smartkarma-citation="entities:21171:1" rel="noopener">Cerved Information Solutions S (CERV IM)</a> for €1.86 bn.
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<li>The duo, operating through an entity that is 85.75% owned by trading software and financial data provider ION and 10% owned by GIC, has bid €9.50 per share, a 34.9% premium to the share price on 5 March.</li>
<li>ION said it plans to support Cerved's current business plan if it acquires the company. Italy-based FSI has agreed to to underwrite the deal up to €150 million.</li>
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Cerved said on 7 March that it was in conversations with unnamed private equity firms for the sale of its bad loan collection unit, Cerved Credit Management Group Srl. The news had already sent the shares up by c. 15%.
Pignataro, owner of ION Capital, usually purchases when he sees low growth and stagnant share prices, then he applies aggressive cost cuts. Cerved's credit management division is the third largest bad debt collector in Italy. The risk management business offers credit parameters to about 40% of the market. Demand has already increased with the granting of state-backed aid loan banks.
There is a minimum acceptance condition of more than 90%, antitrust approval and approval from Office of the Italian Prime Minister.
In the current bid, the premium-implied cost cuts, approximately €50 mn euros per year (about 18% of COGS) seem already ambitious. Although much of the potential cost cuts is already reflected in the premium, the shares closed at €9.63 on 10 March, suggesting the possibility of a counterbid or a sweetened offer.
Cerved has closed on 10 January at €9.63, c. 1.4% above the offer price. This could suggest that ION's offer is opportunistic, despite offering a c. 35% premium over the share price and 11.6x EV/Fwd EBITDA. This valuation is the highest since end of January 2018, when Cerved was trading close to 13.4x.
Recommendation is Long Cerved, TP €10.0 (11.9x EV/Fwd EBITDA).

ION Capital and Singapore's sovereign wealth fund GIC have offered to acquire Italian financial services group Cerved Information Solutions S (CERV IM) for €1.86 bn.

The duo, operating through an entity that is 85.75% owned by trading software and financial data provider ION and 10% owned by GIC, has bid €9.50 per share, a 34.9% premium to the share price on 5 March.
ION said it plans to support Cerved's current business plan if it acquires the company. Italy-based FSI has agreed to to underwrite the deal up to €150 million.

Cerved said on 7 March that it was in conversations with unnamed private equity firms for the sale of its bad loan collection unit, Cerved Credit Management Group Srl. The news had already sent the shares up by c. 15%.
Pignataro, owner of ION Capital, usually purchases when he sees low growth and stagnant share prices, then he applies aggressive cost cuts. Cerved's credit management division is the third largest bad debt collector in Italy. The risk management business offers credit parameters to about 40% of the market. Demand has already increased with the granting of state-backed aid loan banks.
There is a minimum acceptance condition of more than 90%, antitrust approval and approval from Office of the Italian Prime Minister.
In the current bid, the premium-implied cost cuts, approximately €50 mn euros per year (about 18% of COGS) seem already ambitious. Although much of the potential cost cuts is already reflected in the premium, the shares closed at €9.63 on 10 March, suggesting the possibility of a counterbid or a sweetened offer.
Cerved has closed on 10 January at €9.63, c. 1.4% above the offer price. This could suggest that ION's offer is opportunistic, despite offering a c. 35% premium over the share price and 11.6x EV/Fwd EBITDA. This valuation is the highest since end of January 2018, when Cerved was trading close to 13.4x.
Recommendation is Long Cerved, TP €10.0 (11.9x EV/Fwd EBITDA).

Cerved Group - Castor Srl: Sweet Opportunity in Loans Gone Sour

Bespoke Research on China and neighbouring regions, Bixmoor

Bixmoor

Bespoke Research on China and neighbouring regions

Bixmoor specialises in providing bespoke research to business, governments and the financial community on China and neighbouring regions. We seek to build long-term relationships with our clients, based on our expertise, our reliability and our determination to find the right solution.

Thematic (Sector/Industry)

High debt burdens are not just a developing world phenomenon. The growth of Quantitative Easing programs has resulted in significantly increased debt in many countries, including a good number in the European Union, whose debt levels are masked by accounting procedures.

High debt burdens are not just a developing world phenomenon. The growth of Quantitative Easing programs has resulted in significantly increased debt in many countries, including a good number in the European Union, whose debt levels are masked by accounting procedures.

The Potential for National Financial Default

Co-founder & Managing Director, Marketnomix 

Rajan Govil

Co-founder & Managing Director

Marketnomix 

Macroeconomics

The Seasonally adjusted unemployment rate in the Eurozone continued its downward trend, coming in at 10.2% in March 2016 compared to 10.4% in February and 11.2% in March 2015. The unemployment rate was at its lowest level since August 2011, and the gradual improvement in the labor market is expected to continue.The decline in the unemployment was largely across the board amongst the Eurozone members. It decreased to 10% in France in March 2016 compared to 10.2% in February while it fell to 4.2%…

The Seasonally adjusted unemployment rate in the Eurozone continued its downward trend, coming in at 10.2% in March 2016 compared to 10.4% in February and 11.2% in March 2015. The unemployment rate was at its lowest level since August 2011, and the gradual improvement in the labor market is expected to continue.The decline in the unemployment was largely across the board amongst the Eurozone members. It decreased to 10% in France in March 2016 compared to 10.2% in February while it fell to 4.2%…

Eurozone: Seasonally Adjusted Unemployment Rate Continues to Trend Downwards

Italy

Cerved Group S.p.A. offers research solutions to assess the economic and financial structure and reliability of businesses.

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Cerved Group S.p.A. (CERV IM)

Trading Above Terms at the Start of the Tender Offer Period

The market awaits a sweetened offer, highly likely in my view. New TP (DCF based) is €11.04/share. An increase would be justified by better...

Jesus Rodriguez Aguilar

Cerved Group - Castor Srl: Sweet Opportunity in Loans Gone Sour

Cerved is trading above offer, which seems opportunistic, despite a 35% premium and 11.6x EV/Fwd EBITDA (highest valuation since Jan. 2018). LONG...

Jesus Rodriguez Aguilar

The Potential for National Financial Default

High debt burdens are not just a developing world phenomenon. The growth of Quantitative Easing programs has resulted in significantly increased...

Bixmoor

Eurozone: Seasonally Adjusted Unemployment Rate Continues to Trend Downwards

The Seasonally adjusted unemployment rate in the Eurozone continued its downward trend, coming in at 10.2% in March 2016 compared to 10.4% in...

Rajan Govil

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