‘Bear hugs’ on the rise in UK take-privates – but why?; Apollo and EasyJet agree on £5.7bn takeover

Good morning, Nina Lindholm here with the Europe Wire from the London newsroom.

The UK public market has been a popular source for deals. With that increased activity, law firm Covington has noted a return of the bear hug tactic and issued an alert to its clients. We’ll delve into some of the reasons behind the prominence of this approach to start this Friday.

We then have an update on a UK takeover bid in the works: Apollo and Castlelake’s pursuit of budget airline Easyjet. One firm has dropped out of the race, while the other has reached an agreement regarding the takeover, valuing the London-listed business at around £5.7 billion ($7.7 billion; €6.6 billion).

Sticking with the UK for our next deal too. Partners Group has agreed to acquire a majority stake in AVK Power Solutions, a Maidenhead-based provider of power systems for data centers and AI infrastructure.

To finish, we have They Said It, a segment where I highlight my favorite quotes from this week’s PE Hub stories.

In confidence

Take-private bids with UK targets feature in our coverage almost weekly, as investors eye bargain valuations among London-listed businesses. With that increased activity, law firm Covington has issued an alert examining the return of bear hugs in the market.

Bidders that encounter resistance from target boards are increasingly choosing to make the proposed terms of their approach public, rather than negotiating in private, according to the firm.

Covington listed several structural reasons that explain the prominence of this tactic. Among them is the persistent valuation discount: many UK-listed companies have traded at “sustained discount,” the firm said. A target board may consider that the market price does not reflect the company’s prospects and judge an offer against the value it expects it to produce over several years. Shareholders may prefer the certainty of a premium available now, according to Covington.

The firm stated these types of approaches should not be confused with hostile takeovers, as a bear hug is usually an attempt to force a return to negotiations, rather than an attempt to bypass the board.

Take off

One takeover process involving a listed UK business we have been following closely has made a step forward after months of back and forth. Apollo Global Management has reached an agreement with airline EasyJet regarding a takeover that values the business around £5.7 billion ($7.7 billion; €6.6 billion).

The offer, £7.15 per share, gives a premium of 81 percent to the closing price of £3.94 on May 28, and a premium of 54 percent to the closing price on the business day before the outbreak of the current Middle East conflict.

Apollo wasn’t the only firm going after the airline. Castlelake had made several offers for EasyJet, its latest being £6.50 per share, valuing the business at around £4.9 billion. The firm has now dropped out of the race, stating it will not make a firm offer for the company.

In the context of market and macro uncertainty, EasyJet’s next phase of growth and development will be best served as a private company, according to a statement. Private ownership would provide access to incremental capital and enable longer-term business and strategic planning, allowing management to invest with greater flexibility and pursue opportunities that may take longer to realize than is typically possible in the public markets, the statement added.

Defining constraint

Let’s stay in the UK but moving over to privately owned businesses. Partners Group has agreed to acquire a majority stake in AVK Power Solutions, a Maidenhead-based provider of power systems for data centers and AI infrastructure. AVK’s management team will retain a minority stake in the business.

Partners Group plans to initially invest more than $1 billion of equity, supplemented by debt financing, to accelerate AVK’s growth.

AVK designs, installs and maintains power infrastructure for data centers, with a focus on back-up generators, bespoke behind-the-meter turnkey energy systems including microgrids, and modular electrical power units. The company also offers hybrid systems that can run on biogas, biofuel and hydrogen.

“AI is driving one of the largest infrastructure buildouts in decades, and access to power is becoming a defining constraint,” said Nicholas Pepper, managing director, infrastructure, at Partners Group, in a statement. “This constraint and lengthening connection queues are critical bottlenecks to growth in the European data center market, which on-site generation can alleviate by accelerating speed-to-power.”

They Said It

As it’s a Friday, let’s finish with the segment where I highlight a quote that stood out to me from this week’s PE Hub coverage.

I found Craig McGlashan’s interview with Arvid Trolle, co-founder and partner at Njord Partners, interesting, as it touched on how the firm utilizes AI in its operations.

“AI has become a natural part of how we operate across the board. We use it to maximize both customer acquisition and retention, processing large volumes of customer data, spotting behavioral patterns, and building predictive models that allow us to target customers more precisely through tailored messages and personalized offers. AI enables us to have better tools to reach the right customers and grow at a faster pace, but we don’t build an investment case on the assumption that AI alone will deliver step-change growth in acquisition.” – Arvid Trolle, Njord Partners

That’s all from me this morning. John R Fischer will be with you later today with the US Wire, and I’ll be on Europe duty again on Monday.

Cheers,

Nina