Energy Capital Partners (ECP), the New Jersey private equity firm, and New York buyout giant KKR each came out on the losing side of one of the biggest Irish corporate deals last year, as France’s Ardian landed power group Energia for about €2.5 billion.
It emerged this week that they’re back on the hunt in Ireland – this time on the same team.
DCC, the once unwieldy conglomerate whose businesses spanned Robert Roberts coffee to waste management and selling catheters to hospitals, said on Wednesday that it had received a bid approach from ECP and KKR, sending its shares up more than 17 per cent in London to as high as £62.45.
It revealed the next morning that it had rejected their proposal of £58 per share – equating to £4.95 billion (€5.74 billion) in total – with the board unanimously concluding that it “fundamentally undervalues the company and its future prospects”. That’s corporate language for: not even close.
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While the stock has since come back from its highs, it was changing hands on Friday at about 8.5 per cent above where it was before news of the approach.
The overwhelming view among analysts is that DCC, which has been focused of late on selling unwanted businesses to focus purely on energy, is now itself in play.
Inflation remains steady; and Conor Pope’s energy saving tips
On today’s Inside Business podcast Cliff Taylor from The Irish Times discusses the latest inflation figures, and our Current Affairs Correspondent Conor Pope offers tips on cutting your energy bills.Headline inflation in the Irish economy remained steady at 3.6% in April, figures published today show.“It’s hard to know how things will go but it looks like we could have a turbulent three to six months where energy is concerned” Cliff Taylor said.For consumers that could mean the need to take a look at the small changes that could, by the year’s end, tally up to substantial savings.The time you spend in the shower, the amount of water you put in the kettle, and how often you put the immersion heater on are all behaviours worth looking at, explains Conor Pope.
Its days on the stock market may be numbered if chief executive Donal Murphy can’t use the bid interest to finally get market investors interested in what analysts agree is a compelling, but unappreciated energy business.
“We have argued for some time that the group’s core Energy business looked underappreciated and undervalued and that the simplification of the group structure ... and positive steps on energy disclosure should support a re-rating,” said Jefferies analyst Allen Wells in a note to clients this week. A re-rating happens when investors are willing to value a stock at a higher level relative to earnings.
RBC Capital Markets analyst Andrew Brooke, meanwhile, said that DCC was his No. 1 pick for a takeover when he was looking over business services companies at the start of the year.
He reckons there is a good chance that a deal will happen. “We think investors – and management – have been frustrated by the share price performance over the last few years,” he said, noting that the stock has underperformed the FTSE 100 by 60 per cent in the decade that it has been on the prestigious index.
The group, founded 50 years ago as a venture capital firm by Jim Flavin, has been working hard on its elevator pitch over the period.
Hived off
Having exited the food and drink business with the sale of Robert Roberts, healthy food company Kelkin, and wine and spirits firm Findlater in 2015, it hived off its waste management business two years later, before chief executive Donal Murphy announced in late 2024 that he was abandoning the conglomerate model to focus on energy.
DCC sold its healthcare division last year to private-equity owned HealthCo Investments in a deal that had an enterprise value of £1.05 billion, well short of the £1.3 billion to £1.6 billion some analysts had expected.
It also last year sold its information technology distribution business in Ireland and Britain to German-based private equity group Aurelius in a deal worth £100 million, after stomaching tens of millions of pounds of impairment and restructuring charges elsewhere in the division. The remaining tech asset, a North America-focused specialist in distributing audiovisual and lighting equipment, is targeted for sale by the end of the year. It has been on track to achieve between £525 million and £570 million, according to analysts.
Still, its all-in bet on energy has resulted in a fairly complex business in itself, which runs the gamut of operating 1,173 petrol stations in Europe to distributing liquid gas on both sides of the Atlantic, and installing and maintaining solar PV and heat pump systems, mainly for commercial and industrial customers.
The share price remained suppressed even as DCC’s own energy narrative has evolved from pushing its green-transition credentials to also highlighting the role it can play in the security of supply and affordability of supply for customers, according to James Bayliss, an analyst with Berenberg in London. The war in Ukraine and, more recently, the Middle East conflict have underscored the importance of supply and affordability.
DCC’s shares were trading so low in January that its £3.56 billion market value at the time left it among a handful of FTSE 100 laggards – prompting index relegation speculation.
The bid approach was an opportunistic one – with ECP and KKR striking as ongoing sale of the tech division clouded the market’s view of DCC.
Indeed, Charlie Williams at US investment bank Stifel has suggested that KKR might only be in the consortium to get its hands on the tech business. “Whilst we do not believe DCC Technology would sit within ECP’s mandate focused on sustainable energy infrastructure, the consortium bid leads us to believe this asset may be attractive to KKR,” he said.
Brooke at RBC reckons there’s a deal to be done at around £65 a share – which is about halfway between where the stock was trading before the bid news and his best-case sum-of-the-parts valuation for DCC’s assets.
Williams sees it achieving £68.00, while Cantor Fitzgerald analysts are maintaining a £70.70 price target on the stock as they await “possible counter-offers and another improved bid”. An offer at that level would breach £6 billion.
Will the takeover buzz finally wake up sleepy market investors to the real appeal of the energy business? Or would DCC’s management ultimately be happy to see the back of a market that just hasn’t seemed to get it?
