Aggreko: not so perfidious Albion

UK PLC’s car boot sale is well under way. Aggreko, supplier of temporary power, is the latest to be carted off. Albion Acquisitions, a brace of private equity firms, is offering £2.3bn for the Glasgow-based group’s shares, or a generous 49 per cent premium to the weighted average share price in the pre-leak three months to February 4. Throwing in Aggreko’s modest debt gives an enterprise value of £2.7bn, or 6.5 times trailing ebitda.

Aggreko’s board backs the deal. No wonder. “Perfidious Albion” is an old French barb against the English. Albion the consortium is wheedling no bargain, however Aggreko is far from its glory years, when the share price peaked at £23.70 in late 2012. The 880p offer price was last seen in late 2017; the implied valuation multiple before that.

TDR Capital and I Squared Capital clearly see a spark worth rekindling. Their plan is big on investment, low on cost-cutting. Do not expect hefty leverage either. More debt, certainly — Aggreko operates on net debt of an ultra-conservative 0.9 times ebitda — but this will be no supersized leveraged buyout.

Instead, the consortium puts faith in investment. Aggreko’s plan to switch out its diesel fleet stretches over three decades. Capital expenditure, under £200m for each of the past three years, roughly 10 per cent of sales, should rise to just £250-300m this year. That timeframe minimises Aggreko’s ability to step in and temporarily carry the load for transitioning clients. But private owners can front-load that spending and capture adjacent markets; in batteries, say, or solar panels.

Scale, operational leverage and an improved capital structure could help Aggreko reprise the high-30s per cent ebitda margins of yore. Assume, too, annual revenue growth kicks up from the 5-10 per cent promised by Aggreko. Doubling last year’s margin on growth at the top end of that would give £300m or so of operating profit, compared with £136m last year, pre-exceptionals. That would steeply lift Aggreko’s value in any subsequent sale.

Albion’s main risk is that other PE bidders may have spotted the same opportunity: shares rose above the offer price on Friday. Damn perfidious, these mooted PE bidders.

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