Formal Sale Processes: Exit strategy for investors at owner-management companies

I have been writing about Best of the Best (BOTB) for SharePad for publication next week. The company concluded its ‘Formal Sale Process’ (FSP) the other week and, earlier this week, FSPs were launched by Renishaw (RSW) and French Connection (FCCN).

The common theme at all three shares is owner-management. William Hindmarch owns 50% of BOTB, Sir David McMurtry and John Deer own 53% of RSW and Stephen Marks owns 41% of FCCN.

Many of my shares are run by owner management, and the spate of FSPs – essentially a mechanism to co-ordinate/invite takeover offers under the takeover code (a useful FSP primer) – makes me wonder if FSPs will become an exit route for these holdings, too.

The FSP at BOTB concluded without a deal. Mr Hindmarch is 46 and has time on his side to expand his business further. But the RSW directors are both in their 80s and are selling for retirement purposes with the shares at an all-time high*. Mr Marks at FCCN is 74 and seems to have been finally forced into an FSP (and probably retirement) by FCCN’s awful performance over the last 10-plus years.

Oh, and Haynes Publishing, another owner-management business, successfully concluded an FSP early last year.

Wishful thinking perhaps, but leading contenders within my portfolio for an FSP could be:

Mountview Estates (MTVW): Chief exec Duncan Sinclair is 73 and heads a 50% family concert party shareholding worth £225m. Other family members lead a 24% ‘dissident’ shareholding (more here). I understand there are no family members lined up to take over executive duties, making MTVW ideal material for an FSP in my view.

S&U (SUS). Executive brothers Anthony and Graham Coombs are both 68 and head a 50%-plus wider family shareholding worth £130m-plus. Although a younger (50s) Coombs sits as a non-exec and yet another Coombs (30s) works within the fledgling house-loan division, neither strike me as obvious leadership replacements for when the brothers retire.

FW Thorpe (TFW): Brothers Ian and Andrew Thorpe are 75 and 71 respectively and serve as non-execs. They steward a 50%-plus, £184m-plus wider family shareholding. A younger (40s) Thorpe is a board exec, but was appointed less than four years ago and does not appear obvious leadership material just yet.

At some point the directors at MTVW, SUS and TFW will have to consider the future ownership of their significant shareholdings. Either leave them to beneficiaries, who will not be in operational charge of their respective companies, or look for a suitable buyer. Maybe those directors will follow RSW’s lead, and bow out gracefully by inviting bidders after an illustrious record of growth!

Maynard

(*I visited RSW during 2019 after writing this article and briefly met Sir David. I asked whether he would be happy remaining as a major shareholder after retiring from the board, and he openly said he would instead “sell the business”. I was taken aback by his frank reply. The shares were then £39. Closed at £69 the day the FSP was announced.)

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Hi Maynard,

Great post. On the one hand, if you are sitting on large gains, an acquisition offer is nice. On the other hand, part of me is conflicted when receiving a takeover offer. An offer is good if the business is nearing a cyclical peak, but what if the business can continue to compound? Part of me feels that maybe the price offered may not be as high. What are your thoughts on being taken out via acquisition in general?

Anish

Hi Anish

Good question. All depends on the offer and the company involved. Generally the bids I have received have not been too generous.

I was quite happy with the Daejan offer last year, especially as commercial property was about to come under pressure from the pandemic.

But I was not enamoured with Oleeo going private at a low-ball price.

My portfolio has not really received many takeovers. Happy to sell Associated British Ports in 2006 following a lofty private-equity offer. But not happy to sell Abbey Protection in 2014 following a miserly approach from Markel. And not that happy selling Dealogic in 2011 to a so-so MBO. But I did make a decent 4-month takeover profit on Active Risk in 2013, the attractions for which I now forget.

Part of the problem with shares with large management stakes is that the managers may wish to sell at what you think is a mean offer, and you have little say in the matter. But then again, large stakes can stave off takeovers and instead allow the business to compound for shareholders. I trust many of my current shares can remain in the compounder camp.

Maynard

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Have there been any movements in Renishaw and French Connection? It is interesting that Wey Education is already being bought out at such an early stage.

I did not expect this. RSW has concluded the FSP without a deal:

Sir David McMurtry, Executive Chairman of Renishaw, and John Deer, Non-Executive Deputy Chairman, commented:

"At the start of this process we made it very clear that, with the Board, we were focused on ensuring that we find the right new owner for our business. Whilst the formal sale process did not result in a new owner for Renishaw, we are satisfied that it ensured a thorough and rigorous process that enabled us to evaluate a wide range of potential buyers.

We remain fully committed to Renishaw and have indicated to the Board that we have no intention of selling our shares on the market for the foreseeable future. We continue to enjoy good health and as we consider the future of our shareholdings in due course, we intend to follow an orderly process that continues to take into account the interests of all stakeholders.

Renishaw is a very special business with a highly successful business model and a very exciting future. We would like to thank all our employees for their dedication to the Company."

Not every board would place a greater emphasis on finding the right owner (to protect the employees) than on the valuation obtained. How exactly the majority owners, now in their 80s, will eventually dispose of their shares remains to be seen. A call to Mr Buffett?

Interesting to see the line “we have no intention of selling our shares on the market for the foreseeable future”.

BOTB’s FSP conclusion statement did not include anything similar, and five weeks later the BOTB directors sold a third of their shares at £24 (which seems a wise decision with the shares now at £16).

No news as yet from FCCN on its FSP.

I got this wrong. The 33-year-old Coombs was appointed to the main board in April. He works within SUS’s bridging-loan division, the prospects for which seem quite bright and could become a notable profit contributor during the next few years. He also owns almost 14% of the group. I think it fair to assume he is the chosen one to lead SUS after the present executives retire.

Maynard

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Should have added RSW’s FSP took four months from start to finish. I think the board quickly discovered the possible offers were not of a suitable standard. In contrast, BOTB’s FSP took eight months – which in comparison seems a long time for talks over a much simpler and smaller business. FCCN’s has been in takeover discussions for five months and counting.

Maynard

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