Alent (LSE: ALNT) has fallen prey to Platform Specialty Products Corp after the US group made a 503p per share cash offer for FTSE 250 chemicals company.
Platform Specialty is a chemicals industry consolidation vehicle — a cash shell, in other words — which is going around acquiring undervalued businesses in the chemical industry, and rolling them into one group.
The industry consolidator is willing to pay a hefty premium for its targets. Today’s offer for Alent is 49% above Alent’s Friday closing price of 338p. Alent’s shareholders will have the option to receive to receive shares in the new company in lieu of cash, up to 21.9% of the new entity’s issued share capital.
And taking a portion of the offer in stock might be a sensible decision for Alent’s shareholders. Platform Specialty is well placed for long-term growth.
Cost saving synergies
As a standalone company, City analysts had expected Alent to report earnings per share growth of around 10% per annum during 2016 and again in 2017. A combination of cost savings, revenue growth and margin expansion were expected to help Alent to grow pre-tax profit by 44% during the next two years.
As part of the larger Platform Specialty group, Alent should be able to achieve significant cost efficiencies, widening margins further. Platform reckons the combined group can achieve annual pre-tax cost synergies of at least $50m.
What’s more, Platform already owns MacDermid Inc., a specialty chemicals company that is a direct competitor of Alent’s US-based Enthone division that produces coatings for mobile phones and cars.
So, there’s more to this deal than just simple cost-saving synergies. Platform Specialty is removing a key competitor from the market and increasing production simultaneously. However, as the deal will create a company that has a certain amount of control over key markets, it will require antitrust approval.
Rapid growth
Platform Specialty’s strategy is to buy companies that are leaders in niche businesses and require little capital investment. These companies usually generate a large amount of cash, which can be used for future bolt-on acquisitions to further boost growth.
Indeed, over the past 12 months Platform Specialty has been on an acquisition spree, rolling up several smaller peers into its group structure.
This bolt-on strategy is set to achieve results. According to Wall Street analysts, before today’s announcement Platform Specialty’s earnings per share were on track to jump 83% during 2016 and 24% during 2017. The acquisition of Alent should only boost this growth.
Using Wall Street estimates, Platform Specialty’s shares that trade on the New York Stock Exchange are currently trading at a 2017 P/E of 11.7.
The bottom line
All in all, Platform Specialty’s offer to buy Alent looks to be a great deal for shareholders. Shareholders are receiving a hefty premium for their shares, and the enlarged Platform Specialty will be well placed to generate rapid growth in the short-term as synergies flow through, and the company dominates key markets.
