29th Jan 2024 15:29
(Alliance News) - Serco Group PLC has received rumoured bid interest from a US private equity firm, but while the company fell short of confirming talks took place, broker Shore Capital Markets is unsurprised that the outsourcer has been touted a possible takeover object.
The Hampshire, England-based outsourcer, which manages various UK government contracts, was contacted late in 2023 by AIP about a potential bid, Sky News reported.
Sky News said it was unclear whether New York-based AIP had lodged a firm acquisition proposal, although the companies are nonetheless said to have engaged with each other.
However, on Friday, a source close to Serco told Sky News that it and AIP are no longer in active discussions.
Sky added that a conventional 30% premium to Serco's share price on Friday would value the FTSE 250 firm at approximately GBP2.5 billion.
At the time the stock was trading at about 175 pence per share. Serco as of Monday has a market capitalisation of GBP1.92 billion. The stock rose 0.2% to 174.30p each in London on Monday afternoon.
Serco has drawn a line under some of the issues that hung over the stock in recent years, Shore analyst Robin Speakman commented.
A decade ago, Serco undertook a strategy shift, designed to shift the business to focus on the public sector.
The scale of the restructuring required was brought into stark focus when Serco posted its annual results for 2014 which showed a GBP1.35 billion pretax loss amid GBP1.31 billion in one-off provisions on asset impairments and onerous contracts. In addition, its revenue declined that year, for the first time since it listing in London in 1988.
Serco, and peer G4S, were back in 2013 accused of overcharging the UK government on contracts to tag criminal offenders. The scandal damaged the reputation of both outsourcers and saw them blacklisted for a time from winning new UK government contracts.
Shore's Speakman added: "There may or may not have been serious discussions between AIP and Serco, but we are not surprised that a potential offer for the group is being discussed in investment and media circles. Serco has moved well beyond its problems and contract issues of the 2014 period and now has a sound balance sheet and generates strong and increasing cash flows (funding asset allocation options – growing dividends and share repurchase programmes). We expect the group to continue with its commercial strategy funding organic and acquisitive growth opportunities."
By Eric Cunha, Alliance News news editor
Comments and questions to [email protected]
Copyright 2024 Alliance News Ltd. All Rights Reserved.
Related Shares:
Serco