Predictably enough, Aberdeen Asset Management's John Lawrie had some caustic words about the £127 million buyout of Adare Printing by Nelson Loane and Jim Coll, backed by Dublin venture capitalists Allen McGuire.
Mr Lawrie has been a long-time critic of the valuations placed on Irish public companies and his attitude to the Adare deal is no exception. "It is once again possible for a small Irish-quoted company to be bid for and probably bought at a price that would otherwise be recognised as ludicrously low," he said last week.
Whether the Adare buyout - at 10 times earnings - is "ludicrously low" is a matter of debate, but in a review this week, Davy says that the current pitiful valuations of small/mid-caps will lead to more buyouts.
"If market investors are unwilling to recognise value then corporates will, be it management or third parties," Davy's Kieran Mahon comments.
In the past couple of years, Hibernian, Clondalkin, Boxmore and Hampden have all been bought out, with Adare and possibly Dunloe Ewart set to follow.
In the case of the first four buyouts, the prices were 50-70 per cent above the previous market levels. The departure of the four mid-caps has tightened the market for small/mid-cap stocks. This is illustrated by Davy figures showing the small cap sector up almost 27 per cent in the past year, compared to 14.1 per cent for non-financial stocks.
Davy did an exercise on stocks where potential bidders could afford to pay a 50 per cent premium to the market price, pay off outstanding debt and still generate a return on capital of 12 per cent - the benchmark set by the Adare buyout.
This exercise threw up Abbey with a 19.9 per cent return, Crean with 17.2 per cent, Donegal Creameries with 13.1 per cent, Norish with 19.5 per cent, IWP with 12 per cent and Oakhill with 19.6 per cent. Of this neglected bunch, Davy says Norish, IWP, Abbey and Donegal Creameries look "very inexpensive", while Norish and Abbey stand out.
So far, Mr Joe Moran and his fellow-directors have shown their confidence in IWP by a series of share purchases by the directors and buy-backs by the company, but a MBO is a serious possibility with the shares still bombed out.
Abbey has also bought back some shares through the market. Will the Gallagher family - already owning over 27 per cent - be tempted to buy out the rest?
