Volex Share Discussion Threads

[foreverbull] 20/11/2024 05:50

Volex rallying support for TT takeoverRothschild delivers a demolition job on his rival, but is it enough?Tuesday November 19 2024, 12.01am,On Friday, Volex's executive chairman disclosed that, after two takeover approaches late last month, he'd had enough of being rebuffed by TT's board. So, he was going over their heads to investors, with what was then a 139.6p-a-share indicative bid at a 76.7 per cent premium: 62.9p in cash and 0.223 in new Volex shares for each of TT's.It was, in M&A speak, a classic bear hug. So who, you ask, had come up with it? Nat Rothschild, or Lord Rothschild as he's now known, the Volex boss with a 25 per cent stake. And, yes, there is an obvious riposte: isn't he the bloke who gave us the Bumi mining fiasco, not to mention Genel Energy? Indeed, he is. But investors have had a far happier experience at Volex. And not least because, in contrast to Bumi, neither he or they are being duped by Indonesia's Bakrie family.After that farrago, a man as rich as Rothschild could have kept clear of the public markets. Instead, in 2015, he became executive chairman of Aim-listed Volex, turning a £30 million tiddler into what, ahead of his TT tilt, was a group valued at £630 million: one employing 13,500 staff in 25 nations and nicely cabled up for a decarbonising/AI world.Over that time, TT has been going in the opposite direction: a point Rothschild didn't miss. Ditto three Volex executive directors, who once worked for TT. In a nine-year tenure, TT's ex-boss, Richard Tyson - now chief of Oxford Instruments - earned £10 million-plus pay but left the shares below where he joined. His successor, Peter France, in charge since October last year, unveiled a plan in April to "unlock value". Instead, after problems in the US, he halved the share price to 75p - at least before Volex arrived.Still, has Rothschild dangled enough? TT's board, chaired by Warren Tucker, said Volex's tilt "fundamentally" undervalued the group. But it also said it had "recently received and rejected an all-cash indicative proposal from another party at a significantly higher value". Yet, the question it won't answer is what it means by "recently". Was that before or after September's profits warning? The shares had ticked higher for a few days in August. Was it then?Richard Bernstein, of the activist Crystal Amber fund, is no longer a TT shareholder. But as he quipped: "More front than Selfridges springs to mind when reading TT . . . responding to bid proposals from Volex." He also said that, in contrast to Rothschild's "skin in the game", France "hasn't yet bought a share", even if he had nil-cost options that, purely thanks to bid interest, were now "worth £1.4 million".Still, with the merger arbs aboard and Volex shares down more than 10 per cent to 302p, its TT bid now works out at 130.2p a share. Investec called it "highly opportunistic", given likely synergies. Stifel reckons Volex, which has bought a 2.95 per cent stake in TT, will need to get to "160p-plus". And, at 104p, down 6 per cent, TT shares are hardly signalling a deal. Rothschild must persuade three big TT investors - Fidelity, BlackRock and Aberforth - together with about 30 per cent. But, as Stifel noted, much of his "critique of TT's record rings true". He just has to add some sweeteners to his opening barbs.

[valhamos] 19/11/2024 17:35

Should an offer be forthcoming, I'm sure VLX will be very clear on the improvements they can make resulting in their claimed debt reduction to a 1.5 leverage ratio in the near term.

Let's be honest TTG management is a shambles and making improvements would be like shooting fish in a barrel. Taking the previous 4 years together, it has not made a profit - it is a consistent underachiever and has destroyed shareholder value. It is clearly struggling with basic concepts like continuous improvement and assessing customer profitability. In addition there are "significant opportunities to achieve cost synergies in the combined business through the removal of duplicate functions and driving further efficiencies as Volex operates a relatively much leaner fixed cost base." and I would expect Volex to be ruthless in taking a whole raft of costs out of the business. In all this they will be helped by having a number of managers who worked for TTG in the past so they have the knowledge to hit the road running.

[rmillaree] 19/11/2024 16:13

Would seem sensible to spend a couple of years digesting TTG, paying down debt and growing organically - by which time debt:EBITDA would be well below 2 again.

yep exactly - management should be able to communicate that to shareholders if they are sensible enough to do that. Management do seem on the ball here - but each and every acquisition is potentially a pig in a poke and many top level directors perhaps have over confidence in their abilities as a leading trait. They should be able to knock something up to show debt coming down rapidly to soothe shareholders though.

Bit of a tricky one for long term holders who are more of the risk averse nature its always a bit galling to have to sell at under market/recent value if one doesnt want to take a risk.

[valhamos] 19/11/2024 16:06

Just a reminder from the announcement of a possible offer:

"Benefitting from a strong balance sheet combined with significant levels of cash generation providing capital optionality to maximise shareholder value

· Based on the Second Proposal, the combined group would have pro-forma day one leverage of c.2.0x, within Volex's target range of 1.5 - 2.0x.

· The combined group would generate significant free cash flow and leverage would be expected to reduce towards the bottom of Volex's target range in the near term, at which point incremental free cash flow can be directed towards alternative methods of value creation, including additional accretive M&A."

[blusteradjuster] 19/11/2024 15:55

Like i posted previously - the existing 'vision' is for a $1.2bn revenue business by FY2027.

This acquisition, if completed, would create a $1.7bn revenue business by FY2025.

That's a change on and an acceleration from said vision - the VLX board need to articulate what would come next.

Would seem sensible to spend a couple of years digesting TTG, paying down debt and growing organically - by which time debt:EBITDA would be well below 2 again.

[owenski] 19/11/2024 15:35

That debt is consuming a lot in interest payments, NR is a savvy business man but he is building an empire whether one agrees or not and it's predominantly debt funded.

[ymaheru] 19/11/2024 15:27

Just catching up.
Here’s my take on the acquisition:
1- Increases debt by £122m (over twice PAT) and about 5x PAT overall

2- The deal itself seems to have a lot of synergies

3- Volex execs know the company well (many have come from TT)

4- A lot of cost-cutting is possible, as Volex have done well with other acquisitions. I trust Volex’s management to do well here.

5- Even after any downsizing of TT (selling non-core units), Volex increases sales 60-70%

6- This is the correct time to act; TT share price is down and their business mix seems attractive

7- Volex can diversify into new markets (good time to enter defence), and they expand in healthcare

Therefore, I see why the market is nervous about debt, but it seems the right deal at the right time/ price and the right action in medium-long term.

I hope the deal is accepted.

[disc0dave46] 19/11/2024 14:49

rmThanks, at last someone appreciates the additional debt burden and how it's stretching their balance sheet.

[paraguay] 19/11/2024 14:11

Agreed. The attempted take over has actually damaged shareholder value. Their recent results should have driven SP, but this other news is having opposite effect. Move on Nat, plenty more better value fish in sea.

[sharpedge7] 19/11/2024 11:48

Market clearly doesn’t like this deal.
Apart from additional debt it may be perceived as too soon after recent acq in Turkey, esp given last reported EPS number?

[blusteradjuster] 19/11/2024 11:08

I think the key question (and hopefully one the VLX board will get answers to if the TTG board can ever bring themselves to open the books) is the cause of the issues at TTG's North American unit and what VLX's turnaround plan for that unit would therefore be.

North America hasn't exactly been struggling economically - so either TTG NA has poor products (which would be visible externally) or there has been some execution FUBAR(s) causing that underperformance.

[rmillaree] 19/11/2024 11:08

does anyone know if they will likely be inheriting the debt of the TTG if that goes ahead. I think from my prior checks TTG had chunky debt - if that comes over then thats potentialla double whammy of the debt to buy the business and the working capital debt that comes over if they are paying an all in price.

i suspect if thats how its structured the market is saying it really is upping the risk level to the point where the market thinks its safer not to do that deal. On the flip side if they can run that business properly and make good wonga that should be decent future cashflow coming in to cope with elevated debt and long term in theory they should be laughing. if your calcs are right disc0dave46 and debt does go from $154 to $437 that is a huge step change in risk short term and is pretty obvious why then marekt aint particualrly keen on this deal based on those number. Managemnt here havent doen much wrong last few years - but there was long period where management (old?) did nothing right. Can good management cure an inherently bad business quickly - hmmmmmmm - i guess to be fair to TTG despite recent downgrades its still decently profitible (safety margin must be reducing though as updaates get worse with debtb they have)

[disc0dave46] 19/11/2024 10:46

blusterWe are going around in circles. Okay my quick calc of covenant debt ratio was incorrect at 2.6x. Agree it's 2.3x based on their last offer for TTG. If they increase the offer then it will be in excess of 2.3x. Plus TTG downgraded their forecast and you are assuming they will hit these. There's no guarantee that VLX management can resolve the issues at TTG. Covenant debt going from 1.3x to 2.3x is a significant increase.It still doesn't change the fact that net debt will possibly go from $154m to $437m.

[blusteradjuster] 19/11/2024 09:49

The market is likely to focus on the debt:EBIDTA multiple which, using reasonable assumptions, would be 2.3 (not 2.6).

Less focus will be on debt:PBT (coincidentally, a larger number).

Even less focus will be on net debt (coincidentally, an even larger number) as the ratio of debt to metrics such as EBITDA matter more.

[disc0dave46] 19/11/2024 09:31

blusterpmslNot used statistics but fundamentals. Perhaps you could put forward your thinking on why the market has reacted the way it has.

[blusteradjuster] 19/11/2024 09:23

Statistics are dangerous enough when one doesn't know how to present them.

They're even more dangerous when one does.

[disc0dave46] 19/11/2024 08:43

ValThanks for the confirmation.

[disc0dave46] 19/11/2024 08:43

bluster "Stating their only growth is by acquisition when there's recently reported ~10% organic growth"Didn't say that. I said their strategy for growth includes acquisitions.Debt going from $154m to $437m is a concern for me. It pushed debt to pbt to about 3.8x (my benchmark is 3x).

[zho] 19/11/2024 08:27

From Ayl30's Times article:

"But it also said it had “recently received and rejected an all-cash indicative proposal from another party at a significantly higher value”. Yet, the question it won’t answer is what it means by “recently̶1;. Was that before or after September’s profits warning? The shares had ticked higher for a few days in August. Was it then?"

Good point!

[blusteradjuster] 19/11/2024 07:34

- Stating their only growth is by acquisition when there’s recently reported ~10% organic growth

- Stating TTG’s EBITDA is $31m when it clearly is higher as per recently reported trading update

It’s just not good analysis.

[valhamos] 19/11/2024 07:24

Dave "dont know where your EBITDA numbers are from" as stated in my post they were quoted from the TTG H1 announcement of 8 August and the VLX H1 results last week. It's all there in those two RNS.

[ayl30] 19/11/2024 07:23

Volex rallying support for TT takeoverhttps://www.thetimes.com/article/5f6186a3-6f28-4dad-94af-afdf42588206?shareToken=02bb83725f020e26b0ed8d8a86d7fcec

[shaker45] 19/11/2024 02:30

Yes I think he would, if a hostile bid gets too costly. He doesn't need vlx share price punished more, when debt ratio getting higher.
His team may have other targets in their sights

[disc0dave46] 18/11/2024 23:26

Net debt exc lease liabilities and with the TTG bid as it stands would increase their net debt from $154m to $437m. It is a big deal IMO.Red - agree they didn't discuss the TTG deal. So zero mention of funding and debt post any bid.

[blusteradjuster] 18/11/2024 23:12

That 2.3 (190 x 2.3 = 437) likely to be 2 (say 205 x 2 = 410) by, what, March 2025?

It’s just not a big deal - although maybe NR could signal the intention to pay down debt:EBITDA leverage post acquisition to a target value of {insert number below 2 here} by {insert date here} to calm the markets wrt further acquisitions.