For over ten years, SORGEM Evaluation has been analysing public offers relating to the French market using data published on the AMF’s website. We have chosen to play an active role in disseminating the economic and financial analyses carried out in connection with public offers, and we regularly publish selected analyses drawn from our review of independent expert reports.
This note sets out, amongst other things, trends in the number and type of public takeover bids, the valuation methods and parameters used by independent experts, and highlights some recent articles on the subject.
As a reminder, in the case of public offers likely to give rise to conflicts of interest within the board of directors, the supervisory board or the competent body of the target company, as well as in the case of mandatory delistings, an independent expert is appointed by the management bodies of the company whose securities are the subject of the offer. Their role is to issue an opinion on the fairness of the financial terms offered by the offeror to the shareholders of the target company. The expert issues a detailed report in which they analyse the value of the company, the valuation work carried out by the presenting institution and any related agreements (transactions prior to or following the offer, management packages, service contracts, liquidity guarantees, financing of the offer, etc.).
Number of equity certificates recorded by the AMF in connection with public offers and the average fees charged by independent experts
The number of fairness opinions produced in connection with public offers fell significantly in 2018 (an annual average of 39 certificates between 2011 and 2017) but rebounded to reach its highest level in ten years in 2021.
Whilst there was a marked decline in 2022, with 32 certificates recorded, the year remained in line with the long-term average (just under 35 certificates per year on average over the last ten years).
The expert’s remuneration has shown an upward trend in recent years and stood at an average of around €170k in 2022. Although some certificates exceeded this amount in 2021 and 2022, the average – adjusted to exclude outliers – follows the same trend over the period presented.
Categories of public offers encountered and the target’s sector
In 2022, the offeror’s intention was to bring about a compulsory delisting in the majority of the public offers recorded.
In terms of sector, the companies that have been the subject of the most takeover bids over the last two years are consultancy firms (industrial services, IT, etc.) and software development companies.
Methods favoured by experts
The method favoured by independent experts remains discounted cash flow analysis, which is the primary method chosen in more than nine out of ten cases.
Whilst the use of the market comparables method was historically significant, we have observed a decline in recent years. The impact of the health crisis and the war in Ukraine on companies’ latest financial results may have led to this method being abandoned as the primary approach. In this regard, we note that the method is widely used for information purposes only, i.e. without being used to establish a valuation range (more than 55 per cent of 2022 valuations).
The comparable transactions method follows a similar but more pronounced trend, probably for the same reasons.
Focus on the multiples considered
When the stock market comparables method is used as the primary approach, the multiples favoured by experts relate to EBIT and EBITDA aggregates.
Next comes the revenue multiple, which is used in around one in five cases.
Benchmarks selected by the experts
When it comes to public offers by listed companies, it is not surprising to find the share price cited as the primary benchmark used by independent experts. Whilst benchmarks used for information purposes only are not listed here, they account for nearly 35 per cent of the certificates recorded for 2022.
Share capital transactions are regularly used where such transactions took place close to the date of the offer announcement.
Price targets are, by definition, only available where analysts are covering the target company. As such, the use of this benchmark varies and depends on the extent to which the company is covered by analysts.
The discount rate used by the experts is almost exclusively estimated using the CAPM formula.
The equity market risk premium used in this context has historically fallen within a range of between 6.0% and 7.5%. In the second half of 2022, the average stood at 6.75%, within this range.
This level of risk premium represents a significant decrease compared with the average premiums in the 2020 and 2021 equity valuation reports. However, this trend does not necessarily imply a general reduction in the discount rates applied to cash flows, as we note a rise in the risk-free rate over the same period.
The risk-free rate does indeed follow the trend in sovereign bond yields. After falling steadily over recent years, it rose sharply in 2022, particularly towards the end of the year (averaging 2 per cent).
A selection of articles on the subject
- In the context of the contested bid for EDF, an article in Les Echos which addresses the wider issue of fairness statements and the concerns raised by some minority shareholders regarding potential conflicts of interest –> link
- An article from BFM Bourse on the ongoing EDF deal and the appeal lodged by minority shareholders -> link
- An article by Thomas Hachette published in *Option Finance* discussing the valuation of SaaS companies against the backdrop of falling markets -> link
Disclaimer & contacts
This report has been produced for information purposes only, based on SORGEM Evaluation’s databases compiled from publicly available information on the AMF website.
The authors and SORGEM Evaluation accept no liability whatsoever for the transcription, analysis or interpretation of the information contained in this note.
Contacts for this study:
- Thomas HACHETTE, Partner, SORGEM Evaluation;
- Etienne LANGER, Manager, SORGEM Evaluation.
