Business services group Homeserve (HSV) said it has entered talks with Brookfield Infrastructure in relation to a potential offer.
Since Brookfield first announced it was considering an offer for Homeserve on 24 March 2022 the board said it has received ‘a number’ of proposals subject to certain conditions.
Brookfield now has until the close of business on 19 May 2022 to make a firm offer or walk away. Investors sensed a deal was closer to being struck and marked the shares 12% higher to 955p.
The stock has gained 36% since Brookfield’s first approach.
Brookfield Asset Management is one of the world’s largest alternative investors with $688 billion of assets under management.
PRIVATE EQUITY APPEAL
As Shares wrote on 21 March 2022 there are a number of factors that make HomeServe a natural target for private equity ownership.
The firm’s inflation-protected, annuity-like income streams and the defensive and recurring nature of its revenues enables it to support higher levels of debt.
Applying valuation metrics achieved by similar deals in the sector suggests a potential price tag for the business of between £10 and £14 per share.
EXPERT VIEW
Business services analyst David Greenall at Davy has calculated a core sum-of-the-parts valuation of £11 per share. Using a cash-flow based approach Greenall suggests the business could be valued at over £15 a share.
Although the conditional aspect of any proposal is unknown Greenall makes a stab at the key touch points.
‘We would suggest they may well revolve around the requirements to retain management (and how management can retain some kind of ownership considering chief executive Halpin’s stake) or whether Brookfield wishes to retain the whole group (could Home Experts be demerged; does Brookfield want all the pieces of the core?).
Homeserve is a running Shares Great Idea.
