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  • Writer's pictureMark Watson-Mitchell

Now The Competitors Are Striking

A few weeks ago I noted that the UK smaller quoted company sector was looking too low, leading to an increased amount of local and global Private Equity interest fearing that they would miss out on ‘bargain’ purchases. 

After notable corporate moves in today’s market, it now seems that the UK SQC sector is throwing up too many bargain possibilities and it really is beginning to come to life again. 

Private Equity Pockets Are Deep And Situations Plentiful 

At the start of this month I noted that the number of takeover approaches and bids being made by Private Equity outfits was still on the rise. 

I clearly stated that you cannot blame them for looking to take advantage of the low market valuations of so many enterprises within the UK smaller company sector. 

Remember that globally the pockets of Private Equity houses are deep and very well financed – certainly well enough to bid for a company, take it off the market, vamp up its operations while refunding it sufficiently to make even better profits. 

The then private company value and its prospects increases to such an extent that it is either sold off by way of a ‘trade sale’ or even then put back on to the market by way of an IPO at significantly higher values – it really can be a textbook operation when played properly. 

That makes the PE boys, their investors and their financial sources, so much more money to then chase after other such undervalued situations. 

And there really are a lot of ‘cheap’ propositions out there to tempt such savvy participants. 

Now The Competition Is Moving Swiftly 

The biggest mover on the markets today is an old favourite of mine Hotel Chocolat Group (LON:HOTC) (Profile 21.03.19 @ 340p set a Target Price of 402p*). 

Its shares are up 165% as I write, trading at 365p, following a 375p a share cash bid from the Mars Group. 

And who can blame Mars for pouncing upon such an iconic retail brand and manufacturing business. 

Just think what the global selling possibilities will be within the Mars empire. 

A deal with massive sense, as far as I can see, from both sides. 

In early May this year I wrote that: 

“This is one company that I like very much. 

The product and retail range is almost unique at Hotel Chocolat (LON:HOTC). 

And after recent upsets, I am impressed that its management keeps on trucking away at re-shaping its business. 

If its shares stay too low for too much longer I am convinced that any one of the global private equity players will strike in predation.” 

Well, obviously, the Private Equity boys did not advance on HOTC but its competition found it too tasty a morsel to reject. 

Let’s Drink To More Cheap Bids! 

That is just what the Boards of The City Pub Group (LON:CPC) (Profile 04.07.22 @ 80.5p set a Target Price of 100p*) and Young & Co.’s Brewery (LON:YNGA) will now be doing – celebrating. 

Youngs has made a £162m bid for City Pub – valuing its shares at around 145p, compared to the 99p closing price on Wednesday night. 

Rapidly hitting 133p on the offer its shares look as though the market is leaving itself a bit of dealing ability against the Offer. 

Earlier this year I noted that the group had a net asset value of almost 150p a share so there may well prove to be a door being left open for others to peek inside, perhaps wondering whether to have a quick taste. 

More Opportunities Out There! 

A few weeks ago it was the car sales players who were making corporate strikes. 

Also, operators within the services business have succumbed to such pre-emptive moves.  

Just think of the ‘bombed-out’ hospitality sectors, other than pubs, like restaurants, cocktail bars, comfy lounge cafes etc – far too many to list here but the controlling shareholders of loads of such quoted groups must be wide open to tempting offers. 

Just look what Mike Ashley’s Frasers Group (LON:FRAS) (Profile 28.07.23 @ 798p set a Target Price of 1000p) is doing in taking equity leading positions in such ‘trade-hit’ companies as Currys, AO World, ASOS, Boohoo and the like.  

To an aged onlooker as I it really is very obvious that the UK Smaller Quoted Company sector is looking far too low in value. 

Remember it is always easier to manoevre a small craft back on course than it for tankers or cruise liners. 

(Asterisks * denote that Target Prices have been achieved since Profile publication) 


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