Sofos, one of the UK’s largest software development companies, is recommending shareholders accept a fixed $7.40 (£5.85) a share offer from Thoma Bravo, a privately-owned U.S. company. The deal values Sofos at $3.8 billion (£3 billion) but the £5.85 bid is still some way off Sofos’s record high share price of £6.50, set in January 2018. The Sofos share price rose 35.6% to £5.77 on the news yesterday and has eased another 0.4% this morning. That suggests there is still an element of doubt that enough shareholders will agree to accept the bid despite there currently being no sign a counter-bid will materialise.
If, as expected, the takeover goes through, it will add to the more than 500 British companies valued at over $100 million to be taken over by overseas buyers since the Brexit referendum vote in 2016. Some of the biggest deals include those for chipmaker Arm Holdings, bought by Softbank, payments company Worldpay, aerospace group Cobham and pub chain Greene King.
The fall in the value of the pound, which was yesterday sitting at $1.26 against the dollar compared to $1.50 before the shock referendum result that saw the UK set the wheels in motion to leave the European Union, is a major factor. The uncertainty the Brexit process has brought about has, in addition to the drop in sterling making UK companies cheaper when translated into other currencies, also depressed the valuations of UK companies.
Stock broker AJ Bell calculates that price-to-earnings multiples for UK-quoted companies have dropped relative to comparable companies in other developed economies over the past 3 years. FTSE 100 shares are on average valued at around 13 times forecasted profits for next year. That compares favourably with 14.6 in Germany, 15.1 in France and 18 times for the USA’s benchmark S&P 500 index.
Neil Campling, a technology analyst for Mirabaud Securities explains:
“Generally speaking, you have seen multiple compression for UK-listed companies, whereas in other parts of the equity market you have seen multiple expansion. The currency is also pretty favourable for non-UK-domiciled acquirers.”
Sofos has also become an attractive takeover target as a result of a couple of tough years depressing its valuation on top of the general morose afflicting London-listed companies. However, it has started to recover.
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