The attempt by Ecotricity to buy out Good Energy has been trundling along since the summer. It’s a hostile bid and the target continues to push back, not on the usual basis of the offer undervaluing the future prospects of the business, but on the grounds that the two aren’t a good fit and it would take the company in the wrong direction.
The market had, until recently, been bidding up Good’s share price, tracking modestly below what had been offered, but that began to change at the start of the week and there are two coinciding factors in play here that are worth a second look. With retail energy companies going to the wall – another two failed yesterday – there must be an argument that these businesses warrant a re-rating – and not in a positive way. Their valuations are surely eroded by the sector-wide practices that have been adopted, along with the risk of tighter regulatory oversight going forward.
Secondly, however, there’s clearly some degree of commitment to the cause coming from Good Energy’s shareholders. This morning, Ecotricity updated the market on the latest scale of acceptances for the offer – as of yesterday lunchtime, it was still under 30%, and that includes the fact that the suitor has already amassed a 25% stake. This news has taken another swipe at the prospective share price gains posted by Good Energy, as even with the market sliding, a clear majority of investors are keen to sit tight and buy into the issuer’s commitments to make the world a better place.
The investor breakdown is therefore interesting to look at, with reports suggesting that the general public, individual insiders, and the employee share ownership scheme collectively account for more than 50% of investors. There’s a further 20% held by institutional investors but even here, it seems likely that many here would be aligned with the company’s “mission”.
Ultimately this is a relatively small company – the final offer posted by Ecotricity was seen as valuing Good Energy at something under £70m and at the time of writing the market cap was heading down towards £50m. Can we conclude that companies of this size, with a strong mission and engaged investors, can manage to defend themselves against hostile takeovers, or is it simply that the price wasn’t right this time round? Given the turmoil facing energy companies today, it seems this isn’t just about price. It also underlines the growing awareness that we all need to be doing more when it comes to cutting carbon emissions. The collective action of shareholders through this episode has the potential to become the business case study of the future – and underline how individuals holding shares directly rather than through anonymous funds – might actually be a factor in making the future that bit brighter.
HM Treasury has launched a consultation on the regulations surrounding the publication of prospectuses ahead of debt or equity issuance. This has been triggered in the wake of Lord Hill’s review of the UK listing regime and as advocates of public capital market reform, this is something the team at CrowdX are very keen to welcome.
Mike McCudden, CEO of CrowdX, commented:
“CrowdX is the new secondary market for the trading of private company securities. Although the current listing regime does offer some scope for smaller issuers to access capital markets, often they will find themselves constrained by disproportionately high costs when it comes to meeting their statutory obligations. As a result, this can lead to fast-growth companies either selling out to larger competitors or having to rely on expensive bank lending to fund expansion. The public capital market in these situations is unable to serve the needs of the public in general.”
CrowdX is actively engaged in the consultation, with highlights of our response including:
- Applauding the idea of listing reform, most notably as a result of the imbalance which currently exists between listing venues in the UK. Allowing smaller markets to devise their own admission and listing requirements can result in a lack of transparency for market participants, so ensuring the prospectus disclosure details are standardised here would improve the quality of the UK market.
- Also, affording greater discretion to the regulator in terms of when an issuer needs to publish a new prospectus would also greatly enhance London’s appeal as a listing venue, as would the ability to streamline dual listing applications from those already traded on exchanges in third countries. We see CrowdX as being well positioned here to have the necessary flexibility when it comes to assisting those wanting to raise a modest amount of capital in the UK.
We have provided a fuller response to HM Treasury in the consultation document and believe that progress here will truly enhance the UK’s allure as a venue for raising capital. Any successful listing reform will need to be driven by a commensurate focus on the technology to enable this to integrate into the modern financial world. The automated processes we have developed at CrowdX are just one such example of how we intend to help drive the UK’s future success on the global financial landscape.
We’re delighted to announce that Paul Atkinson has been appointed a Chairman of CrowdX. Paul has a recognised track record of building value for companies in the technology and services sector. He is a founding partner of venture capital firm and EIS fund manager Par Equity, and chairman of talent solutions business Taranata Group. Paul is also a Visiting Professor of the Napier University Business School and Chairman of Converge Challenge, a catalyst for accelerating the creation of innovative products and services from Scottish universities.
Mike McCudden, CEO of CrowdX, commented:
“On behalf of the entire CrowdX team, I am delighted that Paul has accepted the role of Chairman. His track record as both a successful entrepreneur and a visionary angel investor means that he is acutely aware of the value a vibrant secondary market can offer privately held businesses.”
“As CrowdX embarks on its mission of transforming capital markets for the businesses of tomorrow, having the support of such highly respected members of the business community will prove vitally important in helping shape our future.”
Speaking on his appointment, Paul Atkinson added:
“Creating liquidity in private capital markets presents a tremendous opportunity. As an asset class, this sector already generates significant wealth, but by facilitating liquidity, CrowdX is opening up a range of investment opportunities that tinified would otherwise be difficult to access. I am delighted to be involved with the high-quality team who are bringing this concept to market.”
CrowdX members experience the benefits of being a public quoted company, without the barriers and associated costs. A number of companies have already expressed an interest in signing up to the CrowdX service, including a number of football clubs that were formerly listed on traditional exchanges.
Big corporate news over the weekend revolves around directors of WM Morrison recommending the 254p per share bid from Fortress. Not only is this around a 10% uplift from the previous offer made by CD&R – another US private equity firm – but it also comes with a raft of promises to protect multiple caveats of the business. WM Morrison owns rather than rents much of its estate, and is also recognised for its commitment to supporting British food producers, especially farmers. The Fortress bid comes with assorted pledges to maintain the status quo here, but are these worth the paper they’re written on? After all, even informal market watchers will still be aware of the high-profile incident when Cadbury was bought by Kraft back in 2010. It promised to keep UK manufacturing sites open – that didn’t last.
So, the prospect now is that further offers will be flushed out, as it seems clear there’s a bargain to be had, here. Another private equity group – Apollo – is rumoured to be looking around in a move which has sent the Morrison’s share price well above levels the bid from Fortress reflects. Investors could soon be asked to show their true colours. Accept a lower priced – but still generous 18 times earnings – offer from a consortium who are pledging to look after staff and suppliers, or accept a higher price from someone with what could be considered a more traditional approach when it comes to return on investment?
Unless those pledges made by Fortress are somehow made irrevocably binding and won’t simply see parts or all of the business being sold on in due course, are investors really wise to buy into promises of good corporate citizenship from what will become a private company with no true external influence on its direction? As much as it pains me to say it, perhaps the wise money takes the highest price on the table then uses the proceeds to find a new investment with values that align with their own.