Headlines in local financial news have recently featured stories of takeovers, mergers, and acquisitions. The beginning of this decade, marked by a significant downturn, has led to an economic cycle ripe with such activities. This bustling environment presents rich opportunities for unique non-blue-chip companies, especially those with smaller market caps.

In today’s market, both public companies and private equity firms are actively seeking to expand through strategic acquisitions. Competing businesses are eyeing specific assets to boost efficiency, while overseas entities, aided by favourable exchange rates, are acquiring at reduced costs. These acquisitions can enable companies to integrate new segments or enter new markets swiftly, bypassing the challenges of organic growth.

However, it’s important to remember that not all takeovers result in shareholder value. While some deals offer attractive premiums, others serve as a reminder of the risks and complexities inherent in M&A activities.

QANTM Intellectual Property Limited (ASX: QIP) announced last Thursday that it had agreed to enter a binding scheme of arrangement with Fox BidCo Pty Ltd, an entity owned and controlled by funds managed and advised by Adamantem Capital Management Pty Ltd.

Adamantem Capital winning the battle to acquire QANTM for $1.817 per QANTM share with the opportunity to elect to receive either 100% cash, or a 50% cash 50% scrip combination. This follows on from just days earlier having received an unsolicited non-binding indicative proposal from IPH Limited (ASX: IPH), a leading intellectual property group, expressing interest in acquiring all QANTM shares through a scheme of arrangement.

IPH’s proposal included offering 0.291 IPH shares and a fully franked special dividend of up to $0.11 cash per QANTM share, valuing the company at $1.90 per share. A premium to the accepted Adamantem Capital offer.

This takeover represents a significant premium for QANTM shareholders with the company trading hands for under $1 less than 6 months ago.

IPH announced their disappointment to the market in an update stating:

QANTM’s bidding war ends despite IPH’s bid surpassing a previous offer from Adamantem Capital.

Pacific Smiles Group Ltd (ASX: PSQ) has been subject to a drawn out takeover by Genesis Capital which took a turn at the end of last month.

The dental group which currently operates 120+ dental centres was subject to an initial bid from Genesis back in December 2023. The bid of $1.40 per share followed notification that it had taken up an 18.75% position in the Pacific Smiles. The attempted acquisition was quickly rebuffed by the board with the suggestion that it did not adequately reflect the strategic value of the Pacific Smiles business and appeared opportunistic in nature.

Genesis was not deterred.

While it took some time the private equity group returned with an increased offer of $1.75. It had also increased its position size in the company in January to 19.90%. This improved offer appeased the board which granted Genesis the opportunity to conduct further due diligence, on a nonexclusive basis, to enable it to put forward a binding proposal.

Enter National Dental Care (NDC).

At the end of April Pacific Smiles entered into a scheme of implementation with NDC to acquire 100% of the shares in Pacific Smiles for cash consideration of $1.90 cash per share, valuing the company at a touch over $300 million. Pacific Smiles will also have the discretion to pay shareholders a fully franked dividend of up to a maximum of 12 cents per share, with any dividend declared reducing the cash consideration of the $1.90 per share under the arrangement. The increased bid has received a unanimous recommendation by the board.

Will we see a return offer from Genesis? We wait with bated breath.

Not all takeovers end positively.

The recent narrative surrounding Perpetual, a stalwart in the funds management sector for 138 years, serves as a poignant reminder that not all takeovers culminate in success. A six month internal review culminated in a deal to sell its corporate trust and wealth businesses for $2.2 billion to Kohlberg Kravis Roberts & Co (KKR).

Perpetual’s ambitious foray into M&A with its acquisition of rival fund manager Pendal for $2.32 billion proved to be a pivotal misstep.

Despite hefty investments and strategic manoeuvring, investor sentiment remained tepid, and Perpetual’s share price languished, failing to recapture its former glory. The KKR bid follows the rejected bid from major shareholder Washington H. Soul Pattinson of $3 billion back in November 2023. The decline in offer serves as a timely reminder to shareholders that not all takeovers end in wealth creation.

Amidst an ever-evolving market characterised by sustained acquisition activity, the pivotal role of a capable and adept management team cannot be overstated.

While a number of examples of recent takeovers have indeed yielded value for shareholders, they also serve as a reminder of the inherent risks and complexities embedded within mergers and acquisitions. Despite the allure of premium valuations and envisioned synergies, the outcomes of such transactions may diverge from initial shareholder expectations. The cautionary tale of Perpetual vividly underscores the imperative of conducting comprehensive due diligence and exercising strategic foresight when navigating the intricate realm of corporate takeovers.

Prudence and discernment remain paramount in safeguarding shareholder interests amidst the allure of potential growth opportunities.

Disclosure: Pacific Smiles Group Ltd (ASX: PSQ) and QANTM Intellectual Property Limited (ASX: QIP) are held in TAMIM Portfolios as at date of article publication. Holdings can change substantially at any given time.