Fi­nally, a for­eign deal of­fer­ing a breath of fresh air to UK in­vestors

The Sunday Telegraph - Money & Business - - Business - RICHARD MARWOOD

Brexit and busi­ness haven’t been best bed­fel­lows since the EU ref­er­en­dum. Un­cer­tainty over trade, reg­u­la­tion and free move­ment has kept board­rooms on edge. Yet amongst the gloom, one fact has shone through. In­vestors in many UK firms have seen im­pres­sive per­for­mance, thanks to the fall in ster­ling.

The ef­fects of this de­val­u­a­tion are well doc­u­mented. For stock mar­ket listed firms, ev­ery dol­lar or euro of rev­enue earned over­seas is now worth more when con­verted back into ster­ling. For some do­mes­ti­cally fo­cused com­pa­nies who im­port ma­te­ri­als from over­seas, the re­verse is true; cost rises lead to squeezed profit mar­gins, in­creas­ing in­fla­tion. But most in­trigu­ingly for in­vestors is the num­ber of busi­nesses which now look far more at­trac­tive as merger or ac­qui­si­tion tar­gets for for­eign groups.

The logic is sim­ple. If you’re an over­seas busi­ness with cash re­serves held in a for­eign cur­rency, UK com­pany shares are sud­denly avail­able at a sub­stan­tial dis­count. And ac­quire they have. The big­gest takeover came shortly af­ter the vote, when Ja­panese con­glom­er­ate Softbank pur­chased mi­crochip man­u­fac­turer ARM Hold­ings, and the deals have kept on com­ing. Pay­ment pro­ces­sor World­pay is ty­ing the knot with US ri­val Van­tiv and en­gi­neer WS Atkins has been snapped up by a Cana­dian group. The lat­est morsel at this buy­out ban­quet sees French en­tity Sch­nei­der team­ing up with Cam­bridge tech firm Aveva.

A suc­cess­ful com­pany which pro­vides soft­ware across a host of man­u­fac­tur­ing sec­tors, Aveva was spun out of Cam­bridge Uni­ver­sity as Cad­cen­tre in 1967 and be­came pri­vate in 1983. Its tra­di­tional forte is com­puter aided de­sign, hav­ing built up a dom­i­nant po­si­tion sell­ing soft­ware to ship­yards, fac­to­ries and re­finer­ies. There are other ma­jor soft­ware firms which are listed on the UK stock mar­ket such as Sage, Mi­cro­fo­cus and Fidessa, but none in the same busi­nesses as Aveva.

This makes it a rare beast, and is why this lat­est deal of­fers a breath of fresh air. For most for­eign ac­qui­si­tions, UK in­vestors tend to be of­fered ei­ther cash or a mix­ture of cash and shares in the ac­quir­ing com­pany; which presents a thorny prob­lem. Bri­tish eq­uity funds can of­ten only in­vest in UK com­pa­nies. That means some UK fund man­agers have to im­me­di­ately sell any new for­eign listed shares they re­ceive from takeovers, as do any pas­sive funds which aim to track the per­for­mance of our do­mes­tic stock mar­ket.

So the struc­ture of this pro­posed deal, which will see Sch­nei­der in­ject­ing fresh cash and a new suite of soft­ware prod­ucts into the ex­ist­ing busi­ness, is a wel­come al­ter­na­tive. This so-called “re­verse takeover” en­sures Aveva will con­tinue to be listed on the Lon­don Stock Ex­change, al­low­ing UK fund man­agers to re­main in­vested. This is par­tic­u­larly per­ti­nent given Aveva’s unique po­si­tion in the mar­ket, as UK in­vestors wouldn’t eas­ily be able to re­place their share­hold­ing with a sim­i­lar busi­ness, a key crit­i­cism lev­elled at the Softbank takeover of ARM. Our stock mar­ket can only ben­e­fit from of­fer­ing a di­verse range of in­vest­ment op­por­tu­ni­ties across many in­dus­tries.

It would be re­miss to sim­ply view the deal through rose-tinted lenses. Aveva’s share price has been choppy over the past few years and cor­po­rate gov­er­nance at the com­bined firm may be called into ques­tion as the tie-up will make Sch­nei­der a ma­jor­ity share­holder.

The case for ap­prov­ing the takeover of, and in­vest­ing in, the com­bined Aveva will come down to the anal­y­sis of in­di­vid­ual fund man­agers and share­hold­ers.

How­ever, it’s far bet­ter for in­vestors to have the op­por­tu­nity to in­vest in a mar­ket that will be of­fer­ing more, rather than less, di­ver­sity and choice.

This deal is a rare ex­am­ple of a for­eign takeover which keeps our op­tions open.

Richard Marwood is se­nior fund man­ager at Royal Lon­don As­set Man­age­ment

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