Shareholders in Numis (LSE: NUM) received a pleasant surprise today before the bank holiday weekend. The stockbroker announced that it has received a takeover offer from industry giant Deutsche Bank. That pushed the Numis share price up by 67% in this morning’s trading, although that still leaves the shares below where they were just a couple of years ago.
That means that, if the offer goes through at its suggested level, some long-term shareholders may get back less than they paid for the shares in the first place (although Numis has paid dividends along the way).
I do not own any shares of the target company. But I think the sudden soar in the Numis share price could be a sign that the big boys are bargain hunting in London’s stock market this year.
I think that highlights that there are also some great investing opportunities open to me right now.
Hunting for value
That is because what Deutsche has done is pounce on an apparently decent business that has a beaten-down share price and now offers an attractive valuation based on historic business performance.
I think there are bucket loads of London-listed companies that match that description. In my own portfolio alone, it could arguably apply to businesses including ITV, Superdry and DCC. In the wider market, there are lots of firms I think could be attractive to a bidder.
If they might be attractive to a bidder, might they also offer good value for my portfolio?
Not necessarily.
Strategic benefits
Take the Numis deal as an example. Why does Deutsche think the firm is worth almost 70% more than suggested by yesterday’s closing Numis share price?
The answer lies in the difference between financial and strategic considerations for buying a business. Buying Numis would give a trade buyer like Deutsche the ability to grow its own business. In explaining the deal, the firms said it would allow Deutsche to accelerate its ‘Global Hausbank’ strategy “by unlocking a much deeper engagement with the corporate client segment in the UK”.
With a strategic rationale like that, Numis may be worth more to a strategic buyer such as Deutsche than to a buyer with a purely financial rationale.
As a private investor, I have a financial motivation. I buy into a company because I think its share price underrates the business’ long-term value. But I will not be unlocking any of that value myself in the way that Deutsche can with Numis.
In other words, there may be shares that offer great value to strategic buyers, but not necessarily to me as a small private investor.
Buying quality on sale
That matters because I do not buy shares simply hoping for a takeover bid.
Instead, I am looking to buy into a great business at an attractive price. Hopefully that will benefit in long-term value creation shareholders, whether or not any takeover bid materialises in future.
I think there are quite a few such opportunities in the London market right now. Indeed, I have bought more shares in both ITV and Superdry for my portfolio this year precisely because I think their current share prices do not reflect what I see as their long-term potential.
Just like Deutsche Bank, I am shopping for bargains in the London stock market while I can!
