Australia's PEP submits $1b take-private bid for SAI Global

The private equity firm is offering to buy all outstanding shares via a scheme of arrangement at a price range of A$5.10-5.25. This represents a 23-27% premium to the 90-day volume-weighted average price and an EBITDA multiple of 12.1-12.4x based on projected earnings for 2014. As of early afternoon trading on Monday, the stock was up more than 17% at A$5.03.

The non-binding proposal was submitted on May 15 but not disclosed by SAI until today. It coincides with the dismissal of CEO Stephen Porges. Executive Chairman Andrew Dutton said in a statement that the move came after it became apparent that differences of opinion between Porges and the board over the detail and pace of implementation of business improvement measures were unlikely to be resolved.

SAI audits, certifies and registers products, systems and supply chains through independent assessment to help companies reduce risk and improve product and service quality. It has three business units: information services, which provides information required to comply with regulatory standards; compliance, which puts together technology-enabled business solutions and staff training; and assurance, which covers risk management, certification and related services.

Originally part of Standards Australia, a non-governmental standards development body, the company was spun out via an IPO in 2003 and its former parent no longer holds an interest. SAI is headquartered in Australia and 61% of its revenues come from this market. North American customers account for 24%, with 11% coming from Europe, the Middle and Africa and 4% from other regions.

SAI reported a 6% year-on-year increase in revenue to A$478.6 million in the 2013 financial year and EBITDA jumped 5.3% to A$100.6 million. However, impairment charges of A$78.6 million arising from a next generation learning platform within the compliance services division that failed to meet expectations were largely responsible for the company posting a net loss of A$43.1 million, compared to a profit of A$42.6 million in 2012.

Statutory net profit for the first half of the 2014 financial year came to A$18 million, down 2.1% year-on-year, while revenue was up 10.6% at A$262.9 million.

SAI said in a presentation earlier this month that it must continue to invest heavily in capital projects to address operational issues, globalize the business and improve IT infrastructure.

PEP is currently raising its fifth Australia-focused fund, which has a target of A$2 billion in core equity. This will be supplemented by co-investment from a handful of sophisticated LPs. The GP raised A$2.7 billion in core equity for its fourth fund plus A$1.3 billion for a supplementary co-investment vehicle.

Last week, PEP made a partial exit from cleaning and catering contractor Spotless as the company raised A$994.6 million through an IPO.

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