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 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 lead underwriters, 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 in 2023 (22 opinions, compared with an average of 35 per year over the last ten years).
In 2023, half of the offers were initiated by family or financial investors (as opposed to industrial investors). This proportion is down compared with 2022, when financial investors were behind 70 per cent of the offers.
The offers mainly concerned medium-sized companies (known as ‘mid-caps’). In 2023, the median equity of the companies, estimated at the offer price, stood at €191 million, ranging from €17 million to €16 billion.
The expert’s fee has shown an upward trend over recent years and stands at around €180,000 on average.
Types of Public Offers Encountered and the Target’s Sector
There has been an increase in public offers followed by a compulsory withdrawal in recent years (80 per cent of offers in 2023 compared with 57 per cent in 2021), a consequence of the 2019 Pacte Act, which reduced the threshold for the required shareholding and voting rights for a mandatory buy-out from 95 per cent to 90 per cent.
In terms of sector, the companies that have attracted the most public offers over the last two years are industrial firms and software development companies.
Premiums offered to shareholders
Premiums relative to the average share price over the three months preceding the offer have been rising in recent years.
In 2023, the average premium observed relative to the share price (3-month average) stood at 35 per cent. By contrast, the average premium observed relative to DCF was 13 per cent.
It should be noted that the premiums offered mask significant disparities between the various offers.
Methods favoured by independent experts and arranging banks
The method favoured by experts and banks 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 in its use over recent years. Experts rely on this method less than bankers, but use it more for information purposes only, i.e. without using it to establish a valuation range. 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.
The method based on observed transactions involving private companies remains less widely used than in the past, particularly amongst experts. This may stem from a lack of relevant benchmarks (a decline in the number of transactions carried out in an economic and financial context comparable to that prevailing at the time of the transaction). The method continues to be used to a significant extent for indicative purposes.
A closer look at the multiples considered by independent experts and underwriting banks
When the market comparables method is applied, experts and investment banks tend to favour EBITDA and EBIT aggregates.
The market multiples used by experts and banks have varied over recent years.
There has been a sharp decline, more pronounced among banks, in the use of the EBITDA multiple since 2019. This decline can be attributed to the introduction of IFRS 16.
It is also worth noting that banks have been increasingly using the revenue multiple in recent years, often exclusively, whilst experts prefer to corroborate it with other multiples.
Benchmarks used by independent experts and the underwriting banks
When it comes to public offers for listed companies, it is not surprising to find the share price cited as the primary benchmark by the experts and the banks.
Share capital transactions are regularly used when such transactions have taken place close to the date of the offer announcement.
Price targets 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. It is worth noting that this benchmark was used more frequently in 2023 as a guide, by both experts and banks.
Components of the discount rate and long-term growth
Over the last five years, the discount rates applied by experts and banks (risk-free rate + market risk premium) have averaged around 10 per cent. Whilst these rates have remained relatively constant amongst valuers, a slight increase has been observed amongst banks, in line with the rise in sovereign bond yields.
A closer look at the parameters selected by the experts
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 6.0% to 7.8%. In the first half of 2023, the average reached a 10-year low of 5.75%.
However, this fall does not necessarily imply a general reduction in cash flow discount rates, as we note a sharp rise in the risk-free rate over the same period.
The risk-free rate has, in fact, followed the trend in sovereign bond yields. After a steady decline over recent years, it rose sharply in 2022 and continued its upward trend in 2023 (averaging 3.0 per cent).
A selection of articles on the subject
- The morning session ‘Valuations carried out in the context of fairness opinions / public offers’, hosted by Thomas Hachette, Partner at SORGEM Evaluation, at the SFEV on 12 December 2023 -> SORGEM Evaluation website Link
- Independent experts stand to benefit from being involved at the earliest possible stage of public takeover bid projects -> AGEFI article Link to article
- Is Orpéa worth as much as TotalEnergies? Article from Le Vernimmen – Article link
- An article by Thomas HACHETTE, Partner at SORGEM Evaluation, published in Option Finance and discussing the value of investment funds’ holdings against a backdrop of rising interest rates and inflation, published on 4 December 2023 -> SORGEM Evaluation website Link to article
Disclaimer & contacts
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 reproduction, analysis or interpretation of the information contained in this note.
Contacts for this study:
- Thomas HACHETTE, Partner, SORGEM Evaluation;
- Etienne LANGER, Manager, SORGEM Evaluation;
- Mathilde FERRERO, Consultant, SORGEM Evaluation.
