A few days after Intertek, the FTSE 100 testing and inspections group, unveiled an uninspiring trading update, the company has revealed it is in talks about an acquisition.
The company wants to buy the business assurance division of Norway's Det Norske Veritas, which has revenues of around £200m. The bulk of the purchase price will be settled with Intertek paper - meaning DNV will become a major shareholder in the company - and this aspect of the deal has helped push Intertek's shares 15p lower to £12.45. Earlier this year there was talk that Intertek itself could be on a predator's radar, with Swiss rival SGS and a price of around £14 a share mentioned.
Commenting on today's news, Nick Spoliar at Altium Securities said:
After a relatively dull update recently, the news this morning that Intertek is in talks over the potential acquisition of a leading global systems certification provider is likely to be encouraging to shareholders. The target, Det Norske Veritasis a worldwide leader in risk management across a range of industries, including several, such as Oil, Gas & Energy, where Intertek is itself a leader in testing and inspection, suggesting good cross-selling opportunities.
Talks are described as being at the due diligence stage. We believe the evidence that Intertek is exploring bold and innovative deals of this nature will generate improved sentiment after a somewhat dull update a few days ago, and we are reviewing our recommendation and target price to reflect the potential for improved upside.
Kevin Lapwood at Seymour Pierce was also positive on the deal:
The business will add around £200m to the top-line, and we estimate, approximately £30m to EBITA. The consideration will be settled with shares. We estimate that this will require Intertek to issue approximately 11% of new shares making DNV its largest shareholder, and resulting in an exit multiple of around 15x. At this level, the acqusition would be marginally earnings dilutive in 2010. However, the deal does have a strong strategic logic and it does demonstrate that Intertek still has growth avenues despite the organic slowdown that it reported earlier this week.
Intertek is therefore on a prospective multiple of 15.8 times for 2009 which now below the closest competitor, SGS, which is on 16.7 times. We retain our outperform rating with a target price of £14.
