Equals Group PLC (Ticker: EQLS) provides for a short term asymmetric bet. It is currently subject to an ongoing strategic review with at least 2 non-binding proposals in hand and will likely be sold for 165p+ within the space of weeks, which is ~30% higher than the current price. It has recently produced stellar FY 2023 results with strong growth ensuing into 2024 that would indicate minimal downside over time if the strategic review concludes without a deal.
Whilst technically not merger arbitrage, given the illiquidity (AIM listed, market making stock, so no order book) and relatively small market cap (£243m) one would expect this situation to fall off the radar from the normal arb players.
Background and Top Level Financials
Equals Group is a technology-led financial services provider primarily focused on the B2B/SME payment solutions market. Founded in 2007 and listed on the AIM segment of the London Stock Exchange in 2014, the company has grown organically and through acquisitions to become a notable player in the fintech industry, particularly in the United Kingdom. The business has consistently grown its revenue since inception, with the last 5 year CAGR at 33%. The key growth driver has been their 'solutions' segment, which focuses on larger corporations requiring customized financial management and treasury solutions. By leveraging advanced API integrations, this segment offers tailored services that integrate seamlessly into clients' systems, significantly expanding Equals Group's corporate client base and enhancing revenue growth.
[I should insert a segmental section here and describe the segments/acquisition history in detail but it won’t be relevant for the direction of the thesis. If so requested I can provide this in the comment section].
Synopsis of Strategic Review and Related Announcements
Strategic Review Initiation (1 November 2023): Equals Group plc began a strategic review in response to market speculation (source), contacting potential buyers such as Fleetcor Europe Limited and Madison Dearborn Partners, LLC to explore strategic options that could potentially include a sale.
Loss of a Potential Bidder (3 November 2023): Fleetcor clarified early in the strategic review process that it would not be making an offer for Equals Group, reducing the number of potential acquirers.
Strong Financial Performance (20 March 2024): Equals Group provided a positive trading update, highlighting significant revenue growth and affirming the company's strong financial health.
Multiple PUSU Deadline Extensions (29 November 2023, 27 December 2023, 24 January 2024, 21 February 2024): The deadline for Madison Dearborn Partners to submit a firm offer was extended multiple times, with the latest extension pushing it to 20 March 2024.
Introduction of a New Bidder (20 March 2024): Following market speculation (source), a consortium including Embedded Finance Limited and TowerBrook Capital Partners expressed interest.
Announcement of Full-Year Results (20 March 2024): The company announced robust full-year results, demonstrating considerable financial strength amidst ensuing growth.
Further PUSU Deadline Extension (17 April 2024): The deadlines for both Madison Dearborn Partners and the new consortium were aligned and extended to 15 May 2024, allowing further time for detailed evaluations and negotiations.
Analysis of News Synopsis
The multiple extensions of the PUSU deadlines suggest serious and progressing discussions, indicative of both parties' commitment. Such extensions often involve significant advisor investment and indicate a likelihood of reaching a formal offer.
The involvement of multiple bidders, including Madison Dearborn Partners and a consortium led by Embedded Finance Limited and TowerBrook Capital Partners, creates a competitive environment. This competition can lead to a higher valuation and more favorable terms for Equals Group.
Equals Group's robust financial results and dividend declarations during the review period enhance its attractiveness and negotiation standing, indicating it is not in a distressed sale position but rather an appealing acquisition target.
Return Calcs and Model Drivers
I do not hold a position with the issuer such as employment, directorship, or consultancy. I and/or others I advise hold a material investment in the issuer's securities.
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