What happened to the Spotless share price?
Shares of listed services company, Spotless Group Holdings Ltd [ASX:SPO] gained more than 48% today, as engineering and infrastructure management company, Downer EDI Ltd [ASX:DOW] made a takeover bid for Spotless.
Why did SPO shares soar?
Spotless Group Holdings Ltd offers services such as catering, maintenance, and cleaning to various companies in Australia and worldwide.
Prior to Downer EDI’s takeover bid, the Spotless share price had fallen from around $1.30 in July last year, to a low of 72.5 cents this week.
Downer’s all-cash takeover values Spotless at around $1.2 billion. Downer will need to raise capital from its shareholders in order to finance the deal.
While this may be a good deal for relatively new Spotless shareholders, the share price performance would seem to offer another cautionary tale about buying a stock after it has been listed by a private equity firm.
The Spotless shares came onto the ASX in May 2014 at $1.60 per share, after private-equity group Pacific Equity Partners took the company private in 2012. After reaching a high of $2.47 in 2015, the share price has spiralled downwards since.
While initial investors in the IPO won’t get their money back, given the recent share price performance, they may be grateful to get back anything at all!
What now for Spotless Group Holdings?
Now it’s a waiting game to see if any other firm will make a competing takeover bid. But with Downer’s near 20% stake, that seems unlikely. Also, given the stagnant revenue and relatively low margins, it’s hard to see that many other businesses will consider it good value to match the earnings multiple being paid by Downer of 40-times earnings.
By Kris Sayce