Mergers and acquisitions have become a common feature of the UK investment landscape in recent years.

Two high-quality trade buyers got in on the action today with premium chocolatier Hotel Chocolat (HOTC) agreeing an all-cash offer from privately owned Mars while Young & Co (YNGA:AIM) has agreed a cash and share offer for City Pub (CPC:AIM).

Hotel Chocolat shares surged 160% to 363p while shares in City Pub were 35% higher at 135p. Young’s shares were unchanged at £11.

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CULTURAL FIT

The deal between Mars and Hotel Chocolat has been struck at a staggering 170% premium to the 139p closing price on 15 November providing co-founder and largest shareholder Angus Thirlwell with a lucrative payday.

However, the price is around 27% below the all-time highs reached in December 2021.

Mars said it believed there was a strong cultural fit between the two firms, and it shared Hotel Chocolat’s passion and conviction ‘to make people and nature happy through reinventing chocolate.’

Mars added it believes it is ideally positioned to support Hotel Chocolat's long-term strategic objectives with better access to committed, long-term capital.

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Hotel Chocolat’s directors have unanimously recommended the deal and Mars has secured around 69.6% shareholder support.

WHY THE BIG PREMIUM?

AJ Bell investment director Russ Mould commented: ‘The fact Mars is willing to pay a 170% premium for the shares is remarkable on two accounts.

‘First, bid premiums are typically in the 25% to 50% range so Mars paying so much more would suggest it has taken a long-term view of what the business is worth.

‘Second, it suggests that Mars has spotted an opportunity and there is no way it wants to waste time with a low-ball bid. This looks like going in with its best offer with the hope of wrapping up the transaction as quickly as possible.’

PUB COMBINATION

Meanwhile, in the leisure sector, premium pub company Young’s has agreed to purchase the City Pub for £162 million comprised of 108.75p per share in cash plus Young’s shares.

The implied value of the transaction is 145p per City Pub share equating to a premium of 46% to the 99p prior closing price. Both sets of directors have unanimously recommended the deal.

Young’s chief executive Simon Dodd told Shares he has long admired City Pub and he believes there is a good fit between the two estates which are predominantly freehold and wet-led.

The company said the transaction is expected to be accretive to margins through purchasing synergies.

Russ Mould commented: ‘Young’s has been more of an organic growth story but buying City Pub Company would boost the size of its managed pub estate by more than 20%, making it a meaningful deal.

‘The acquired pubs and bedrooms fit nicely alongside its own assets in terms of quality, giving it a bigger position in the UK pubs market and increasing its premium accommodation capacity by more than 25%.’

Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (Martin Gamble) and the editor of the article (Ian Conway) own shares in AJ Bell.

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