European Event-Driven Analyst

Jesus Rodriguez Aguilar

Jesús is an Insight Provider (Event-driven) on the Smartkarma network, where he looks across sectors at opportunities arising from securities mispricing (both credit and equity), share classes, bid announcements, prospective bids, and special situations. He has served as Economic and Business Advisor at the Spanish Congress in Madrid. Prior to that, he has worked in the City of London: as a Credit Analyst at Bloomberg; Event-driven associate at former boutique European Research; and doubled as Special Situations and Equity-linked VP (convertible bonds) at Merrill Lynch. Jesús has an MBA from the London Business School, a BA (Hons.) degree in Economics from the Complutense University in Madrid, and a BA (Hons.) in Law from U.N.E.D., also in Madrid.

Aggreko - PE Consortium: Recommended Cash Acquisition

Aggreko: Shareholders' Meeting, Spread Turned Positive

Event-Driven

TDR Capital and I Squared Capital have approached <a href="https://www.smartkarma.com/entities/aggreko-plc" target="_blank" data-smartkarma-citation="entities:21804:1" rel="noopener">Aggreko PLC (AGK LN)</a> for a possible 880p cash takeover bid. Following a report by Sky News, on 5 February, Aggreko said in a statement that it has entered into discussions with the consortium. “Based on Aggreko’s closing share price yesterday, the Proposal would represent a 39% premium.”
<ul>
<li>Put up or shut up deadline: 5 March.</li>
</ul>
Aggreko is an asset-based business, with significant emerging market exposure. As a rental company, Aggreko is sensitive to the economic cycle and faces substantial and competitive challenges, which represent headwinds for revenue growth and return on capital, in my view.
Aggreko’s shares rocketed in response to the offer talks (up to 844p), but this also underlines the misery of its shareholders over the last decade.
<ul>
<li>Aggreko traded above 2,500p back in 2012.</li>
<li>Moreover, even before Covid-19, it seemed difficult that the company would make a comeback to its glory days.</li>
</ul>
The fact that an offer price has been disclosed indicates that the consortium is serious in its offer and has advanced in the valuation of the business. It is highly likely that a cash offer will be made.
The share is not trading on fundamentals. The offer price represents c. 1.9x P/BV vs a five-year average of 1.6x, and 5.3x EV/2021E EBITDA (vs. 9.6x for Ashtead or 7.4x for United Rentals, though clients are a bit different). It also implies a ROIC over 13% (below management expectations of 15%).
Gross spread is 4.5%. Recommendation is LONG AGK LN, TP 880p.
Risks. Should an offer fail to arrive, or an offer is made but the deal falls through, there is substantial downside.
Read across: as markets recover from the pandemic lows, cheap credit is fueling deal-making, which combined with Sterling weakness, has many prospective buyers (many from private equity) focusing on UK listed companies.

TDR Capital and I Squared Capital have approached Aggreko PLC (AGK LN) for a possible 880p cash takeover bid. Following a report by Sky News, on 5 February, Aggreko said in a statement that it has entered into discussions with the consortium. “Based on Aggreko’s closing share price yesterday, the Proposal would represent a 39% premium.”

Put up or shut up deadline: 5 March.

Aggreko is an asset-based business, with significant emerging market exposure. As a rental company, Aggreko is sensitive to the economic cycle and faces substantial and competitive challenges, which represent headwinds for revenue growth and return on capital, in my view.
Aggreko’s shares rocketed in response to the offer talks (up to 844p), but this also underlines the misery of its shareholders over the last decade.

Aggreko traded above 2,500p back in 2012.
Moreover, even before Covid-19, it seemed difficult that the company would make a comeback to its glory days.

The fact that an offer price has been disclosed indicates that the consortium is serious in its offer and has advanced in the valuation of the business. It is highly likely that a cash offer will be made.
The share is not trading on fundamentals. The offer price represents c. 1.9x P/BV vs a five-year average of 1.6x, and 5.3x EV/2021E EBITDA (vs. 9.6x for Ashtead or 7.4x for United Rentals, though clients are a bit different). It also implies a ROIC over 13% (below management expectations of 15%).
Gross spread is 4.5%. Recommendation is LONG AGK LN, TP 880p.
Risks. Should an offer fail to arrive, or an offer is made but the deal falls through, there is substantial downside.
Read across: as markets recover from the pandemic lows, cheap credit is fueling deal-making, which combined with Sterling weakness, has many prospective buyers (many from private equity) focusing on UK listed companies.

Aggreko: £2bn Potential Bid from PE Consortium