Global Yachting Group (GYG.L) – Merger Arbitrage – 13% Upside

Current Price: £0.82

Offer Price: £0.925

Upside: 13%

Expected Closing: July, 2021

Press release

 

On the 9th of April, UK superyacht coating and maintenance services company Global Yachting Group announced preliminary takeover intentions from its 2nd largest shareholder - investment group Harwood Capital (owns 20%). Consideration stands at £0.925/share in cash. Due diligence started and the initial PUSU date was set for early May, but was eventually extended to the 4th of June. GYG shares used to trade with 6% spread that widened to 13% after the extension. If a firm offer is eventually announced, I would expect the spread to be eliminated.

Non-binding situations are generally quite risky as the buyer is free to walk away. However, in this case the pre-announcement price (£0.78/share) stands only 5% below the current one and the timeframe is very short - just a few remaining days until PUSU deadline (unless it gets adjourned once more).

A few more points worth noting:

  • Largest GYG shareholder Lombard Odier Asset Management, which owns 26.9%, has already agreed to support the transaction. Adding shares owned by Harwood we already have 47% of GYG shareholders in favor of the merger. Scheme mergers in UK require approval from 75% of shareholders. If a firm offer is announced, management (owns 14% combined) votes will also support the transaction.
  • Harwood seems like a credible buyer (mid-market investment group with £1.9bn AUM) and has already shown a strong interest in GYG. The buyer acquired 17% stake on the 18th of Jan'21 from the previous 2nd largest shareholder Lonsdale Capital. The transaction price wasn't revealed, however GYG shares closed at £0.75/share on that day. Over the next couple of months Harwood increased the stake to the current 20.5% (the last filing was done on the 22nd of March).
  • Lombard Asset Management, the largest GYG shareholder was also buying shares earlier this year - increased the stake from 24% to 26% on the 18th of January.
  • Overall, it seems that this acquisition is a post-COVID superyacht rebound play for Harwood Capital. GYG has recovered from the performance hurdles in 2018 and is consistently growing its adj. EBITDA. 2021 is expected to be great and the company has stated that Q1'21 revenue grew 21% YoY with improved margin performance. The superyacht industry was negatively impacted in 2020, however, by the end of the year, sales surged to record highs (the second part of Dec was the best since 2009). The industry is expected to grow at 5.2% CAGR from 2021 to 2028.
  • The offer comes at 11.4x adj. 2020 EBITDA and 10.5x normalized adj. EBITDA 2020 multiple, which looks very reasonable in the current market.

 

GYG

The company provides superyacht painting, supply and maintenance services globally. The operations are divided into 3 key sales channels - refit (repainting and finishing), new build (fairing and painting of new vessels) and supply (maintenance materials, consumables, spare parts, etc.).

The company IPO'ed in mid 2017 at £1/share. Shares used to trade at around £1.30-1.40/share till mid 2018, when the price crashed to current levels due to weaker financial performance related to the 2018 Atlantic hurricane season and temporary downturns at certain GYG refit centres. 2020 was also slightly impacted by the COVID outbreak, mostly due to project delays - management calculates that around €4m-€6m of 2020 revenue was shifted from 2020 to 2021.

Historical financials:

The record book is also at record highs, which should positively affect 2021 performance:

* Forward Order Book represents orders scheduled for completion in 2022 onwards

11 COMMENTS

  1. dt

    Just this morning it was announced that discussions with Harwood are still ongoing and that PUSU deadline has been extended till the 2nd of July.

    “Discussions between Harwood Capital and the Company and Harwood Capital’s due diligence enquiries remain ongoing. As such, at the request of the board of directors of GYG (the “Board”) and pursuant to Rule 2.6(c) of the Code, the Takeover Panel has consented to an extension of the relevant deadline of 28 calendar days. Accordingly, Harwood Capital must, by no later than 5.00 p.m. on 2 July 2021, either announce a firm intention to make an offer for GYG in accordance with Rule 2.7 of the Code or announce that it does not intend to make an offer for the Company”

    https://ir.q4europe.com/Tools/newsArticleHTML.aspx?solutionID=3516&customerKey=globalyachtinggroup&storyID=15082317&language=en

  2. Yardir

    PUSU extended to Aug 20 – https://ir.q4europe.com/Tools/newsArticleHTML.aspx?solutionID=3516&customerKey=globalyachtinggroup&storyID=15133112&language=en
    GYG ran short on working capital and Harwood agreed to provide 10m in bride financing at 10% interest, maturing in December and repayable any time. The shortfall is due to delayed payment of invoices from a shipyard in administration – https://ir.q4europe.com/Tools/newsArticleHTML.aspx?solutionID=3516&customerKey=globalyachtinggroup&storyID=15136438&language=en
    The bridge financing from Harwood sounds to me like they are still interested in getting the deal done – any other takes on that?
    down about 10-15%.

    2
  3. Ilja

    Harwood cut the offer to £0.70/share, clearly looking to exploit current GYG’s issues with the delayed payments from a shipyard in administration. The board responded that it would reject any offer at this price unanimously. Then the buyer offered to add CVR mechanism, so GYG shareholders would receive additional value on “future exit event occurring”. The terms are now being negotiated and the PUSU date was extended once more till the 17th of September. As a result of these developments, GYG share price took a hit and trades in line with the updated offer of £0.70/share. The largest shareholder Lombard Odier Asset Management (27% stake) has made no comments so far. At this point, any further positive price negotiations seem like a low-risk option as it’s unlikely that Harwood will cut the offer once again, while the downside seems protected by the current valuation (8.1x adj. EBITDA 2020) and historical GYG trading range.

    https://www.londonstockexchange.com/news-article/GYG/extension-of-deadline-under-rule-2-6c-of-the-code/15107035

    1. snowball

      After a CVR is added and announced, I expect that GYG price will behave similar to Bacanora’s (BCN.L) ‘s case, trading at around the cash portion of the offer for a while, with the remaining spread being the CVR value.

      So, if GYG is currently already trading at around 70 pence, I think short-term upside can be quite limited even in the best case scenario.

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