Is the M&A scene heating up in the smaller companies sector?

Mark Watson-Mitchell takes a look at two companies that could soon be subject to M&A activity in the smaller companies arena.

Studio Retail Group (LON:STU) – the market can be such a leaky place

Valued today at around £235m, Studio Retail Group sees its shares trading at some 270p each. Earlier this week they touched 288p, a straight leap overnight of 30p – just ahead of news that the Accrington-based ‘digital value retailer’ was up for sale.

This may or may not have come as a surprise to either Michael Ashley, whose Frasers Group is a 37% holder, or Schroder Investment Management, whose funds hold another 19% of the fashion, homeware and gifts online retailer’s equity.

The interims show recovery

The interims to 25 September reported a 17.2% rise in sales at £268m and a 52% leap in adjusted pre-tax profits at £17.7m, while the core net debt was £25.6m lower at just £45.2m.

At the same time as announcing its results, the company stated that it was launching a strategic review as well as a formal sale process.

The group’s Studio business declared that it had increased the number of customers by 15% in the first half-year to an impressive 2.1m. This side made £24.4m in H1, a 63% gain.

On the other hand, the group’s Education business reflected school closures during lockdown. Revenue was down 23% in H1 and made an operating profit of £1m, against £3.3m last time.

Will Frasers Group bid?

Frasers Group, which bid £140m for the group last year, considers that the digital retailer is misunderstood by the stock market and it is therefore ‘undervalued’.

I understand that Schroders has agreed to the group’s ‘up for sale’ plan – so will Ashley take the bait – and if so at what price will he bid?

(Profile 04.07.19 @ 253p set a Target Price of 375p)

Codemasters Group Holdings (LON:CDM) – another bidder about to pounce?

Despite the directors of the Cambridge-based video games developer eyeing very large bonus payments due to speeding on the Nasdaq-listed Take-Two International’s cheap bid for their group, it appears that another couple of interested parties are on the sidelines.

Ubisoft or Liberty Media?

I mentioned a few weeks ago that Ubisoft, the French games group had recently raised some €600m for future expansion. 

Meanwhile, Liberty Media, the Formula One owner, has also raised a big chunk of fresh funds recently, about $800m.

Could either of these two companies come in with a bid for Codemasters?

Top fund manager Crispin Odey has staked his bet on another bid

Fund manager Crispin Odey certainly thinks either or both could well be close to making a play for the group. His Odey Asset Management has built up a 3% stake in Codemasters.

It would be like old times if we see some counter-bids shining through in the smaller company sector.

The shares closed last night at around 516p. More fun in store?

(Profile 25.06.19 @ 225p set a Target Price of 278p*)