SVG urges shareholders to wait on £1bn HarbourVest bid

The London-listed private equity investor has asked shareholders to wait until its results on 30 September before taking action, but the deal looks likely to proceed, say analysts.

Boston-based private equity investment firm HarbourVest is looking to delist SVG Capital, launching an unsolicited bid that values the London-listed private equity investor at about £1.015 billion ($1.3 billion; €1.2 billion).

HarbourVest is aiming to acquire SVG Capital using financing from its Dover Street IX Fund, a secondaries fund that raised $4.1 billion of capital commitments for investment, surpassing its target of $3.6 billion. Investors in Dover IX include the Michigan Department of Treasury, Houston Firefighters’ Relief and Retirement Fund, and Nebraska Investment Council, according to PEI data.

HarbourVest Structured Solutions III LP or HarbourVest Bidco, the exempted limited partnership established for the purposes of this bid, is making a full and final cash offer of 650 pence a share, a premium of about 14.7 percent over SVG Capital’s closing price of 566.5 pence a share on 9 September, the last business day prior to the offer announcement. It is a final offer, meaning that under the City Code, it cannot be raised.

The offer represents a discount of about 2.4 percent to SVG Capital’s last published net asset value per SVG Capital share of 666 pence as at 30 April.

In a statement, HarbourVest said it believes the offer is “highly attractive” for SVG Capital’s shareholders, noting that the discount to NAV is “significantly lower than the long-term discount at which SVG Capital’s share price has traded as compared to its published NAV”.

For example, over the one year period ended 9 September, SVG Capital has traded at a 20.2 percent average discount to published NAV, while over a five year period, that figure is 20.3 percent, HarbourVest said.

But in a statement Monday, SVG Capital’s board urged its shareholders “to take no action at this time”, saying the company will publish its interim results on 20 September. “Shareholders will then have the relevant information on the Company and its performance with which to consider the offer,” the board said.

David Atterbury, managing director of HarbourVest, said in a statement that while the offer currently does not have the recommendation of SVG Capital’s board, HarbourVest “look[s] forward to a constructive dialogue with them in order to crystallise the certainty of value, today and in cash, to its shareholders”.

HarbourVest has acquired listed private equity funds before, SVG Capital’s broker Numis said in a research note. The firm bought Absolute PE for $806 million in 2011, and Conversus Capital for $1.4 billion in 2012, analyst Charles Cade wrote.

HarbourVest Bidco said in its announcement Monday that it has received an irrevocable undertaking and letters of intent supporting its bid from shareholders representing about 42.7 percent of SVG Capital’s issued shares as at 9 September. HarbourVest went on to buy a further 8.5 percent of shares in the market, taking its level of support to 51.2 percent.

The bidco received an irrevocable undertaking to accept the offer from London-based private equity secondaries firm Coller International V, which represents about 31.2 million or 20 percent of SVG Capital’s shares as at 9 September. This undertaking remains binding in the event of any other bid for SVG Capital, the firm said.

In addition, HarbourVest Bidco received letters of intent to accept the offer from SVG Capital shareholders Aviva and its subsidiaries, Legal & General Investment Management, Old Mutual, and Coller International V; these represent a total of 35.4 million shares, or 22.7 percent of SVG Capital’s shares as at 9 September.

HarbourVest said its offer is conditional on receiving valid acceptances from shareholders representing more than 50 percent of the voting rights. If the bidco receives valid acceptances representing not less than 75 percent of the voting rights, HarbourVest plans to delist SVG Capital from the London Stock Exchange and re-register it as a private limited company, which would “significantly reduce the liquidity and marketability of any SVG Capital shares not assented to the offer,” HarbourVest said.

London-based brokerage firm Liberum said in a research note that “given the level of support the bid has already received, it is highly likely to go through”. SVG Capital’s share price has risen about 15 percent since the open, Liberum said, taking it slightly above the 650 pence per share offer price.

“Bids in the listed private equity sector are notoriously difficult with a counter-offer unlikely,” Stifel analyst Iain Scouller wrote in a research note. Given Stifel’s NAV estimate of 695 pence to 725 pence at 31 July, SVG may be taken private at a discount of up to about 10 percent, he wrote.

The offer comes just over 11 weeks after Britain voted to leave the European Union on 23 June, and is likely to be viewed by the market as a sign of confidence in the UK’s private equity industry despite uncertainty over exactly when and how Britain’s withdrawal from the EU will proceed.

Indeed, in Private Equity International’s Brexit Special published 1 September, George Anson, HarbourVest’s London-based managing director, told PEI that in the wake of the Brexit vote, now may be a good time to do deals and make some acquisitions.

Recalling the firm’s tactics in its secondaries business following the 2008 financial crisis, Anson said that “with the benefit of hindsight, we should have loaded up on anything that moved and we didn’t”.

SVG Capital has net assets of more than £1 billion ($1.3 billion; €1.2 billion). It invests with a small number of private equity fund managers, so that it can build strong relationships with them. Its current portfolio consists of six private equity fund managers, including Cinven, Clayton, Dubilier & Rice, and Permira.

HarbourVest has $43 billion in assets under management. It invests across all parts of the private equity spectrum: in funds, secondaries, and direct co-investments.