OpinionTakeover bid

CompuGroup Medical free float between a rock and a hard place

Private equity firm CVC is taking advantage of the depressed share price of CompuGroup Medical to launch a public tender offer to the free float shareholders. The plan is to form a strategic partnership with majority shareholders led by the Gotthardt family, and delist the company.

CompuGroup Medical free float between a rock and a hard place

You have to give CVC credit for that: The timing of the CompuGroup Medical takeover offer looks perfect. The private equity firm is taking advantage of a probably temporary weakness of the provider of software for the healthcare sector to get shares cheaply. And with the announcement that the security would then be delisted after a successful tender offer, a threat is being created to encourage outside shareholders to sell. The offer is only being made to the free float. The majority shareholders around company founder Frank Gotthardt have announced that they will not sell any shares.

Price looks unattractive

From the point of view of the free float, the offer price of 22 euros looks unattractive. The premium of 51% on the three-month average price only comes about because a sales and profit warning pushed the share price to a ten-year low in July, and the resulting loss of confidence has acted against a rebound.

Shareholders who have been on board for a while will have to accept considerable losses on their original purchase price if the deal goes through. Compared to the level of a year ago, the discount is around 40%. These prices may well be reached again in the future, as CompuGroup Medical is a healthy company that operates in growth markets and, despite the current crisis, generates an operating return on sales of 20%.

The hope of getting a better deal with the delisting compensation offer than with the current public tender offer could be deceptive. This is because such an offer is usually based on the average price of the past six months. There is no reason to pay more than the lower limit determined in this way. The free float, therefore, has the choice of either accepting a low level offer, or holding on to their shares in a company that plans to delist if the tender offer is successful. They would then have to rely on OTC trading.