Mergers and acquisitions (M&A) occasionally make headlines in the stock markets. There are different types of mergers and acquisitions, but simply put, they are two companies that are merged into one entity.
Successful M&A transactions usually have a specific, well-founded logic behind the strategic moves. Meanwhile, national regulators generally pass M&A laws, boosting takeover activities.
Today we are introducing a leading company, namely G4S (LON 🙂 (OTC :), which recently found itself in the middle of a bitter bidding war between two other companies acquiring.
Recent research by Abongeh Tuny from the University of Sheffield highlights:
"Evidence suggests that acquisition goals are inefficiently managed, relatively undervalued, relatively smaller (than acquirers), suffer from a mismatch between growth opportunities and resources."
Let's take a closer look.
G4S
G4S, based in the United Kingdom, is a multinational private security company known for its trained and screened security personnel. Surveillance and response services are another core unit, where G4S (CSE 🙂 provides key protections, mobile security patrols, and alarm receiving and monitoring facilities.
The group also provides security systems such as access control, CCTV, burglar alarms, fire detection, video analytics and security. Due to increasing digitization, the company is integrating technology into its offer.
In the past 12 months, the shares of GFS have returned more than 30%. Year-to-date (YTD), the stock is up more than 5%. On February 18, it hit an all-time high, closing at 268.8p ($ 18.8 for US stocks). The current market capitalization is more than £ 4.1 billion (or $ 5.8 billion). The forward P / E and P / S ratios are 17.27 and 0.56, respectively.
Recently, G4S made headlines when two separate private rivals started a heated bidding war to acquire the company. The US security and facilities group Allied Universal and Canada & # 39; s GardaWorld both want to acquire the company.
Canadian pension fund Caisse de dépôt et placement du Québec (CDPQ) and private equity firm Warburg Pincus are the largest shareholders of Allied Universal. Another leading private equity group, BC Partners supports GardaWorld, based in Montreal. On a side note, we recently discussed exchange-traded funds (ETFs) that focus on private equity.
Allied Universal agreed on a preliminary takeover bid of £ 3.8 billion (or $ 5.3 billion) with G4S in December 2020. But investors held out for a higher bid from GardaWorld, which raised £ 3 billion earlier in the year. ($ 4.2 billion). summer, and recently increased it to £ 3.7 billion (or $ 5.1 billion). The board of G4S has advised investors to reject GardaWorld's offer and instead back Allied's offer. But GardaWorld has indicated that it will make a higher offer.
GardaWorld & # 39; s management said:
“G4S is a company that has delivered nothing to shareholders, customers, employees or the public. G4S needs new, professional and experienced leadership to craft a credible strategic plan that will transform G4S's outlook and distance the company from its unfortunate past. "
Finally, the UK Panel on Takeovers and Mergers, charged with regulating takeovers in the country, has decided to proceed with a regulated auction for G4S. The auction starts on Monday, February 22. If one of the parties makes a new sealed offer on Wednesday, February 24, the other has until the next day to respond. If both parties bid during the first three days, both companies will have the opportunity to make a new offer on Thursday, February 25.
The current stock price (or market capitalization) of G4S is higher than the highest bid. In other words, the market is now expecting at least one higher bid from both companies.
The security space has grown in recent years. Growing fears of terrorism and crime coupled with police cutbacks have made it possible for private security companies to bring in more revenue with ease. G4S took £ 3bn (or $ 4.2bn) in & # 39; new and retained & # 39; for 2020 contracts, an increase of £ 2.5 billion (or $ 3.5 billion) in 2019. Cash flow for the company benefited from COVID-19-related labor costs and other indirect tax deferments.
Bottom Line
Shareholders of G4S are likely to witness significant developments in the coming weeks. Investors should be careful when buying a share that can be acquired. Their existing shareholdings may be converted to a fixed ratio of shares in the parent company. Or they can simply opt for a cash payment for the sale of their shares. Regardless, a takeover bid at a higher price than currently seen is positive for existing shareholders. It is up to each investor to decide whether to cash in or take up a new position in the parent company or the newly created merged company.
Those readers who are not G4S shareholders but are interested in investing in M&A opportunities might consider exploring an ETF focused on M&A activities.
IQ Merger Arbitrage ETF (NYSE 🙂 – decreased 0.2% YEAR TO DAY;
ProShares Merger ETF (NYSE 🙂 – 3.0% increased YTD;
We plan to cover these funds in the near future.
