黑洞社区

Analysts believe Arcadis has scored a 鈥渢echnical knockout鈥� in its bidding war with Japanese rival Nippon Koei to acquire UK consultant Hyder.

Arcadis announced yesterday afternoon it had agreed an improved offer to acquire Hyder, trumping a deal agreed between the UK firm and Japanese consultant Nippon Koei earlier this month.

Arcadis is offering 拢7.30 per Hyder share, valuing the firm at 拢288m, representing a 7.4% premium over Nippon Koei鈥檚 deal to acquire Hyder for 拢268m and is 13% above Arcadis鈥� original deal for a 拢256m takeover.

Arcadis also announced it has acquired 15.6% of Hyder鈥檚 shares and has confirmation from all of Hyder鈥檚 directors and chief executive Ivor Catto鈥檚 wife that they intend to sell their shares to Arcadis, representing a further 0.7% of Hyder鈥檚 shares.

Arcadis chief executive Neil McArthur told 黑洞社区 this afternoon the level of support secured from Hyder鈥檚 board indicated the deal was final: 鈥淲e have a very strong commitment from the Hyder board of directors and they believe the deal will benefit Hyder strategically, culturally and for their people.鈥�

McArthur said Hyder鈥檚 directors鈥� commitment to sell their shares to Arcadis 鈥渃annot be reversed鈥� and added Arcadis had secured irrevocable undertakings to support the deal overnight from a further 2.3% of shareholders, taking the 鈥渢otal shares committed to the deal to 18.6%鈥�.

McArthur said Arcadis and Hyder were 鈥渧ery complementary businesses鈥�, with the deal adding 鈥渄esign and engineering expertise we did not have in the UK and Middle East, while enabling us to enter the Australian market.鈥�

Hyder Real-time Share Price

Hyder鈥檚 shares were trading above Arcadis鈥� offer price today, fluctuating between 拢7.35 and 拢7.49, indicating the market is pricing in a potential counter-bid from Nippon Koei (see chart, left).

Nippon Koei issued a statement this morning saying it noted Arcadis鈥� improved offer and 鈥渋s considering its position and will make a further announcement in due course鈥�.

Arcadis Real-time Share Price

Analysts told 黑洞社区 they believed a Nippon Koei counter-bid to be unlikely, noting that one of Japan鈥檚 biggest credit rating agencies, Rating and Investment Information (R&II), put Nippon Koei鈥檚 triple-B credit rating at risk of a potential downgrade last week if the deal went ahead, due to the 鈥渉eavy financial burden鈥� it would place on it.

Analyst house Liberium said the latest Arcadis offer 鈥渇eels like a technical knockout鈥�, but said: 鈥淎 counter cannot be ruled out, but it seems unlikely.鈥�

Liberium said: 鈥淎 7% increment may not look convincing, but Arcadis鈥� acquired minority stake, the directors鈥� commitment to sell their shares and risk to Nippon Koei鈥檚 credit rating limits the prospect of a successful counter.鈥�

Liberium said Arcadis鈥� acquisition of 15.6% of Hyder鈥檚 shares was a 鈥渟trong statement of intent and will act as a disincentive to any counter-bid鈥�.

Liberium added: 鈥�15.6% is not a blocking stake, but it makes it difficult for any counter offer to achieve 75% of votes through a scheme of arrangement. Arcadis could still make further market purchases to achieve its aim.

Bjorn Krook, analyst at ABN Amro, said his view was that the improved Arcadis offer was 鈥渁 done deal鈥�, but added: 鈥淗yder鈥檚 share price is ahead of Arcadis鈥� offer price, so the market is betting on potentially a higher bid from Nippon.鈥�

Krook said Arcadis would have to achieve its planned synergies with Hyder - which it expects to be worth 拢15m per annum from the end of 2016 - to justify the raised deal price.

Arcadis鈥� deal is a 12.6 multiple of Hyder鈥檚 earnings before interest, tax, debt and appreciation (EBITDA).

Krook said: 鈥淭he multiple is certainly steep and it was high from the outset. Making it a good deal is very much dependant on the synergies they can achieve. We鈥檒l have to see how they come along. On previous deals - such as EC Harris - Arcadis claims to have overachieved on that measure.鈥�

He added the trend for consolidation in consultancy was being fuelled by skills shortages: 鈥淭he sector is consolidating rapidly. Most of these companies are claiming the reason is because of the war for talent.鈥�

Krook said a further Arcadis acquisition, for 1,000-strong US architect Callison for 鈧�109m (拢87.3m), also announced yesterday, looked like better value.

He said: 鈥淭he Callison deal - at a 5.5x multiple EBITDA - looks to be better value. That firm also has a higher margin at 17% [above Hyder鈥檚 7.4% margin]. Personally I鈥檇 rather they did two Callison acquisitions rather than one Hyder deal.鈥�

Tony Williams, analyst at 黑洞社区 Value, said: 鈥淭his is fantastic for the Hyder shareholders but the exit multiples are astronomical and in order to make a return, profits will broadly need to double at Hyder.

鈥淎lso, I think pride was at stake (not sensible in business) after they had bid the first time.

鈥淚t will definitely be earning dilutive for Arcadis. But do they care? It is a comparatively small purchase.鈥�

Dieter Furniere, analyst at KBC, struck a note of caution when asked if the Arcadis deal would win out: 鈥淚t鈥檚 never a done deal. Nippon made the first offer so they must have felt they had the means for the first bid.

鈥淸However] they need to communicate on the exact way to finance it. It鈥檚 difficult to see where the muscle is to do the deal.鈥�

On the high price, Furniere said: 鈥淭he high multiple reflects the strategic value and Arcadis has communicated that this reflects the synergies it expects to achieve. That said, it also reflects the fact that there are two bidders here.鈥�

McArthur said the acquisition of Callison helped make Arcadis a 鈥渓eader in design globally鈥� and strengthened its market position in architecture in China and the US.