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 regularly publish selected analyses drawn from our review of independent expert reports.
This note analyses, 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 fairness opinions 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 (annual average of 39 opinions between 2011 and 2017) but has risen again over the last three years.
This trend continued in 2021, with 42 certificates recorded.
The expert’s remuneration followed the same trend, peaking at an average of over €180k in 2021. We note that the report relating to Veolia’s takeover bid for Suez (fees of €1,500k) has pushed up the average, which would otherwise have stood at around €150k.
Types of Public Offers Encountered and the Target’s Sector
We also note that public offers followed by a mandatory buy-out account for half of the offers made in 2021, thus returning to a level closer to that observed historically.
In terms of sector, the companies that have attracted the most public offers over the last two years are consultancy firms (industrial services, IT, etc.), software development firms and industrial 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 8 out of 10 cases.
Whilst the use of the market comparables method was historically significant, we have observed a decline over the last two years. The impact of the health crisis on companies’ latest financial results may have led to this method being abandoned as the primary approach. We note, however, that in 2021 this method was widely used for information purposes only – that is, without being selected to establish a valuation range (in nearly 40 per cent of valuations).
The comparable transactions method, following a resurgence in interest in 2020, has returned to historically observed levels.
A closer look at the multiples considered
When the market comparables method is used as the primary approach, the multiples most commonly employed by valuers relate to the aggregates of EBITDA and EBIT.
Whilst we observed a shift away from the EBITDA multiple in 2020 in favour of the EBIT multiple (coinciding with the initial impacts of IFRS 16), this trend reversed in 2021, with reports using comparables citing an EBITDA multiple in two-thirds of cases.
Benchmarks selected by the experts
In the case of public offers for listed companies, it is not surprising to find the share price cited as the primary benchmark used by the independent experts (benchmarks used for information purposes only are not listed here).
Share capital transactions are regularly used where such transactions have taken place close to the date of the offer announcement.
Target share prices are, by definition, only available where the target company is covered by analysts. As such, the use of this benchmark varies and depends on the extent to which the company is covered.
Components of the discount rate and long-term growth
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%. We note a significant increase between the first half of 2020 and the first half of 2021, which may be linked to the rise in uncertainties surrounding the health crisis during this period. In the second half of the year, the market risk premium averaged 7.2 per cent.
The risk-free rate has been falling steadily over the past 10 years, in line with trends in sovereign bond yields. It has stood between 0.0% and 0.5% since 2018. The long-term growth rate, used in particular to calculate the terminal value, has remained relatively stable over time and has been close to 1.5% over the last 18 months.
A selection of articles on the subject
- an article from L’Agefi discussing trends in independent valuation, based on analyses by SORGEM Evaluation’s Fairness Opinion Observatory -> link_to_article
- In light of recent developments (the SMTPC deal), a web page by Quirites SAS, an investment company owned by Pascal Quiry’s family and a minority shareholder in SMTPC, offering a critical assessment of the financial analyses produced in connection with this public offer initiated by Vinci and Eiffage (which have also been published in SORGEM’s Fairness Opinion Observatory) -> website_link
- In connection with current events (the Suez/Veolia deal), an article by Mr Nussenbaum on anti-takeover defence mechanisms -> article_link
- In connection with the takeover bid for Natixis, an article by Maître Devouge on the consequences of passive management for takeover bids -> article_link
- the risk map presented by the AMF on 5 July 2021 -> link_AMF_risk_map
Disclaimer & contact details
This study has been carried out 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, Assistant Manager, SORGEM Evaluation.
