It's official, IT services supplier Phoenix IT (PNX) is on the receiving end of a takeover bid from Daisy, the formerly AIM-listed but now private equity-owned telecoms supplier. We're not surprised, we have previously explained that this could well be on the cards multiple times in Shares, most recently in our Play of the Week in April, but as far back as last May, despite Phoenix CEO, and turnaround king Stephen Vaughan, denying talks in September.
This stands to create an unparalleled £200 million revenue business selling IT and telecoms services to UK mid-market enterprises. Overall revenues will add up to £620 million. As Megabuyte's Philip Carse points out today, this will see Daisy 'leapfrog above Talk Talk Business and Virgin Media Business, leaving it behind only BTEE, Vodafone and O2/Three in the UK B2B marketplace.
The deal is expected to close around the end of July.
The question is, should it?
The 160p per share offer has been recommended by the Phoenix board but this looks like another deal on the cheap by Toscafund. Remember, it paid just a 9% premium when it took Daisy off the public market, now its offering barely half the Phoenix's value just five years back. In 2007, Phoenix shares were trading at nearly five quid.
The attraction to Toscafund is obvious. The estimated £179 million enterprise value deal implies 6.6-times 2015 EBITDA (earnings before interest, tax, depreciation and amortisation) and it will boost Daisy EBITDA by about 42% to about £91 million, and that's before speculated £100 million-odd synergies.
Yes, this offer means a rough 24% premium on where the shares were before this story first broke last week, and 27% up on our April Play. But wouldn't shareholders be better served allowing Vaughan more time to show his turnaround stuff? Then again, this is exactly what UK investors do, take their money off the table at the first hint of a profit. It (probably) wouldn't happen in the States, they take a longer-term view, and it's to our detriment that we don't.