Adare Printing may be the next small Irish public company to be taken private after the group revealed yesterday that members of its management were planning a buyout.
The announcement of a possible management buyout (MBO) drove Adare shares up 23 per cent to €8.25, valuing the company at €125 million (£97 million), although market sources believe any successful bid would have to be pitched substantially higher.
If Adare is taken private by its management, it will be the second MBO of an Irish public company within a year. Last August, a 44-strong management team backed by British venture capital group Candover bought out the Clondalkin print and packaging group for €385 million. Adare has many similarities to Clondalkin. It operates in the same business and is profitable but has suffered badly in the market as investors deserted small/mid capitalisation Irish equities for larger European stocks in the aftermath of the introduction of the euro.
In the past two years, Adare shares have fallen from a high of €13.33 to a low of €5.50 before recovering to €6.77 prior to yesterday's announcement. Even yesterday's closing price of €8.25 only brings Adare shares back to their level of late 1998.
Neither Adare chief executive Mr Nelson Loane nor finance director Mr Peter Lynch was available to comment on the management proposal to take Adare private. Industry sources believe the MBO team is likely to include Mr Lynch, materials director Mr Jim Coll, commercial director Mr John Doris and possibly a group of managers from Adare's various subsidiaries. Of the senior management, Mr Loane is the only substantial management shareholder with a 6 per cent stake in the company. His position in relation to the MBO remains unclear.
A spokesman said an independent committee of non-executive directors had been set up to consider any offer from the management group. There was general agreement on the Irish market yesterday that the €8.25 closing price is nowhere near enough for any successful offer from the MBO group and that a successful bid - whether it is from the MBO group or some third party - will have to pitch its offer much higher if it is get the support of the five key institutions that control 40 per cent of the company - AIB Investment Managers, Fidelity, Bank of Ireland Asset Management, Standard Life and Aberdeen Asset Managers.
At €8.00 and based on forecast April 2000 earnings of 110 cents per share and forecast earnings before interest, tax and depreciation of €17.5 million, Adare is trading on a prospective price/ earnings ratio of 7.3 and an earnings before interest, tax and depreciation multiple of seven. These are hardly excessive multiples particularly when compared with the 12 times earnings and 7.5 times earnings before interest, tax and depreciation paid by the Clondalkin management group in its MBO last year.
When pricing a management buyout, the management group - and its venture capital backers - has to be certain that the privatised group is able to generate the cash to pay off the debt involved while still providing a return to the backers.
But some of Adare's institutional shareholders, notably Mr John Lawrie of Aberdeen Asset Managers, have on many occasions being critical of MBO prices and Mr Lawrie in particular is likely to press for the highest possible price.
There is also always the possibility that with Adare now in play, some third party might enter the bidding.
