In the wake of SVG’s proposals to ward off a £1 billion ($1.3 billion; €1.2 billion) unsolicited bid from HarbourVest, shares in the London-listed private equity investor contracted by 3.26 percent to 652 pence on Wednesday, as the market reacted with disappointment to SVG’s plans.
SVG’s shares dropped back from post-bid highs of more than 680 pence to 652 pence a share, just 2 pence off HarbourVest’s offer price.
SVG is the target of a £1 billion ($1.3 billion; €1.2 billion) unsolicited bid from HarbourVest and is under pressure to strike a deal that could ward off a hostile takeover. SVG said after the market closed on Tuesday that it had agreed “in principle” to sell 50 percent of its portfolio to a pair of bidders, Pomona Capital and Pantheon Ventures, for £379 million.
The first close of HarbourVest’s 650 pence-a-share offer, which is final and cannot be raised, is 1pm UK time tomorrow, Thursday, so time is running out for SVG shareholders to make a decision.
SVG is proposing to use the proceeds from selling half its portfolio to launch a £450 million tender offer at 700 pence a share in November of this year. This will be followed by a further tender offer of at least £300 million by February 2017, with more offers to come as investments are sold off and the company is wound down, SVG said.
In a bid to sway shareholders ahead of tomorrow’s first close, HarbourVest played up the risks in SVG’s defence plan.
SVG’s proposals “begin and end with complexity and conditionality, offer little clarity as to value, are non-binding and carry significant market and execution risk”, HarbourVest managing director David Atterbury said in a statement.
The statement named four such risks and uncertainties.
First, there is uncertainty over the proposed sale of assets to Pomona and Pantheon, which may take weeks to be finalised and made legally binding. In the meantime, if the buyers choose to buy fewer assets than planned, or offer a lower price for them, the amount of cash SVG can return to shareholders will be reduced.
Second, there is uncertainty over how much shareholders will eventually receive from SVG’s tender offers. Assuming the sale to Pomona and Pantheon is finalised, the amount of cash SVG shareholders can expect is about 480 pence a share, said HarbourVest: 288 pence a share from the first tender, followed by about 192 pence a share in the second, a calculation based on the roughly 156 million SVG shares in issue as at 12 September. Both offers will take several months to be completed, whereas HarbourVest said it is offering cash within 14 days of the offer becoming unconditional.
Third, once half its portfolio is sold, there is uncertainty over the value or marketability of the remaining assets SVG holds. Some of SVG’s non-mature assets would have vintage years of 2014 or later, and HarbourVest reiterated its point that portfolios of funds tend to experience “flat or negative performance” in the initial years.
Fourth, there is uncertainty over the costs involved and the time taken to wind down fund portfolios, which are “significantly greater” than SVG anticipates, HarbourVest said. After buying Amsterdam-listed Conversus Capital in 2012, it took six months for shareholders to receive the first tranche of cash from the sale, and almost 18 months for the vehicle to be wound down. SVG could take longer still, HarbourVest said, estimating that costs could add up to about 35 pence a share, and not 21 pence as SVG indicated.
Some analysts said a case can be made that SVG is worth more than HarbourVest is offering, but warned that the break-up of the private equity investor's assets will mean uncertainty for shareholders, and will take over a year to conclude.
Based on a net asset value of 735 pence at 31 July, and taking into account the tender and wind-down costs, analyst Iain Scouller at Stifel estimated that SVG could be worth as much as 700 pence over 15 months, “well above” HarbourVest's offer, but this assumes the initial portfolio is sold at a discount, while the rest of the assets are sold at the 31 July NAV.
“Whilst we think the HarbourVest cash offer is 'low' on a 10 percent to 12 percent discount to NAV at 31 July 2016, it does in a number of respects offer greater 'certainty' to the SVG wind-down,” Scouller said in a research note.
Analyst Tom Skinner at Fidante said in a note: “We actually do have confidence that [SVG’s] proposal could deliver superior value, over time and helped by recent further sterling weakness, to the 650 [pence per share] offer from HarbourVest, which was somewhat opportunistic.”
But “the collapse in the share price to just above the offer level, suggests that HarbourVest may yet prevail”, he said.