Hyder share price rises above Arcadis offer price, but analysts deem Japanese counter bid unlikely

Neil McArthur

Source: Jon Enoch

Analysts believe Arcadis has scored a “technical knockout” 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 £7.30 per Hyder share, valuing the firm at £288m, representing a 7.4% premium over Nippon Koei’s deal to acquire Hyder for £268m and is 13% above Arcadis’ original deal for a £256m takeover.

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

Arcadis chief executive Neil McArthur told Building this afternoon the level of support secured from Hyder’s board indicated the deal was final: “We 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.”

McArthur said Hyder’s directors’ commitment to sell their shares to Arcadis “cannot be reversed” and added Arcadis had secured irrevocable undertakings to support the deal overnight from a further 2.3% of shareholders, taking the “total shares committed to the deal to 18.6%”.

McArthur said Arcadis and Hyder were “very complementary businesses”, with the deal adding “design and engineering expertise we did not have in the UK and Middle East, while enabling us to enter the Australian market.”

Real-time Share Price
Hyder Real-time Share Price

Hyder’s shares were trading above Arcadis’ offer price today, fluctuating between £7.35 and £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’ improved offer and “is considering its position and will make a further announcement in due course”.

Real-time Share Price
Arcadis Real-time Share Price

Analysts told Building they believed a Nippon Koei counter-bid to be unlikely, noting that one of Japan’s biggest credit rating agencies, Rating and Investment Information (R&II), put Nippon Koei’s triple-B credit rating at risk of a potential downgrade last week if the deal went ahead, due to the “heavy financial burden” it would place on it.

Analyst house Liberium said the latest Arcadis offer “feels like a technical knockout”, but said: “A counter cannot be ruled out, but it seems unlikely.”

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

Liberium said Arcadis’ acquisition of 15.6% of Hyder’s shares was a “strong statement of intent and will act as a disincentive to any counter-bid”.

Liberium added: “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 “a done deal”, but added: “Hyder’s share price is ahead of Arcadis’ offer price, so the market is betting on potentially a higher bid from Nippon.”

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

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

Krook said: “The 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’ll have to see how they come along. On previous deals - such as EC Harris - Arcadis claims to have overachieved on that measure.”

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

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

He said: “The Callison deal - at a 5.5x multiple EBITDA - looks to be better value. That firm also has a higher margin at 17% [above Hyder’s 7.4% margin]. Personally I’d rather they did two Callison acquisitions rather than one Hyder deal.”

Tony Williams, analyst at Building Value, said: “This 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.

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

“It will definitely be earning dilutive for Arcadis. But do they care? It is a comparatively small purchase.”

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

“[However] they need to communicate on the exact way to finance it. It’s difficult to see where the muscle is to do the deal.”

On the high price, Furniere said: “The 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.”

McArthur said the acquisition of Callison helped make Arcadis a “leader in design globally” and strengthened its market position in architecture in China and the US.