Jim Armitage: SVG sale is too hasty but Coller Capital has deal of the century

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Unless you’re in the business, the last time you’ll have heard SVG’s name was probably when its chairman said private-equity kingpins pay less tax than cleaning ladies.

Nine years on from Nick Ferguson’s candid outburst, the cleaners at HarbourVest are sweeping SVG away altogether.

While Monday’s bid is opportunistic and undervalued, there’s no doubt SVG’s shareholders fancy an exit.

L&G, Aviva and Old Mutual’s acceptances of the bid aren’t set in stone, but – just like the Americans’ dawn raid on the shares – they indicate a strong appetite for  the deal.

Of course, HarbourVest says its offer is far from opportunistic. Its team explain that the value of SVG’s investments are going nowhere for years. SVG has just pumped a whole bunch of cash into new projects which won’t start bearing fruit for at least five years. We can wait that long, but can you, they ask. 

As for the price, they tell you, we’re being generous.

Funds like SVG are measured by the discount between the share price and the worth of the underlying investments (the net asset value). The discount reflects running costs and the illiquid, risky nature of the investments. In SVG’s case, the Americans are offering a 2.4% discount to the last NAV measure. Given that the discount has been 20% over the past two years, that’s hardly stingy, Harbourvest says.

But it is: SVG’s NAV temperature was last taken before Brexit. Since then, as most of SVG’s investments are in dollar and euro-earning companies, it’s pretty safe to assume the valuation in pounds will have increased by 10% or so. In which case, Harbourvest’s offer price represents a discount of more like 12.5%. Hardly bite-your-hand-off territory.

I may be wrong about SVG’s up-to-date value. But we only have to wait until next Tuesday to find out: that’s when SVG is scheduled to announce its current NAV. As such, it seems crazy that shareholders are selling out today.

One which irrevocably accepted the bid from the get-go is Coller Capital.

Coller has fewer reasons than most to quibble over a few pence here and there on the share price. It invested £42 million in the rescue refinancing of SVG in 2009 and, even at today’s low-ball offer, stands to pocket a profit of £225.5 million. If that’s not one of the deals of the decade, what is?

All those years ago, Ferguson was criticising the low-tax treatment of carried interest, the method private-equity executives use to be taxed at the rate of corporations rather than people. It’s been partly addressed in recent Budgets, but not entirely.

Jeremy Coller and his partners’ “carry” will be boosted by tens of millions of pounds from the SVG deal. I wonder how much the Exchequer will see of it.

Source Article from http://www.standard.co.uk/business/jim-armitage-svg-sale-is-too-hasty-but-coller-capital-has-deal-of-the-century-a3343031.html

September 12, 2016 |
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