Analysts' verdict on £85m ISG takeover

US investor Cathexis is getting a good deal for UK builder ISG with its £85m takeover, according to analysts.

The US firm is likely to refocus ISG on its core fit-out business before attempting to sell it on for a profit within five years, analysts have said.

Cathexis triumphed in its 10-week battle to buy ISG last Wednesday, with its second improved offer of £1.71 per share, or £85m. The firm had previously failed with a £1.43 a share, or £71m, bid in December.

ISG’s board had repeatedly rejected Cathexis’ takeover approaches before performing a dramatic U-turn last Wednesday morning, approving the deal once it became clear Cathexis was on course to reach the 50% threshold required to take the deal unconditional – which it duly did later that day with 58% support.

Analysts told Building two ISG profit warnings in 2015 caused by problem jobs in its new build construction arm softened the firm up for a takeover.

Nick Spoliar, analyst at WH Ireland, said that the price is less than an informal bid made by Cathexis for the firm last June of £1.74 a share, or £86m, which ISG’s board rejected at the time for undervaluing the company.

Spoliar said: “The fact that they are now recommending acceptance [after rejecting an earlier higher bid] is a measure of the damage done by the nameless issues lurking in the construction business which have repeatedly emerged to trouble them.”

Spoliar added that ISG’s fit-out business “is trading very well by all accounts, creating fundamental long-term value which Cathexis will no doubt mine or exploit further down the line”.

Tony Williams, analyst at Building Value, predicted the firm would refocus on its “core business” of fit-out before looking to add value for a potential sale in 18 months to five years’ time.

He said: “They’ll be looking for an exit, either a trade sale or float. I reckon they got it cheap. People were so fed up they were able to hoover up stock. They should be able to put at least £1 of value on that per share. It’ll be eminently sellable.”

Williams also speculated that Cathexis may look to replace ISG’s board given its long-standing opposition to a takeover. He said: “What they’ll likely do is go to the next level down of management.”

ISG chief executive David Lawther (pictured) said: “Cathexis clearly sees the strength and potential of ISG’s businesses. The board remains focused on the growth and future success of the company.

“It is business as usual for ISG and its employees, suppliers and customers.”

Cathexis will take ISG private and delist it from the London stock exchange if it receives acceptances taking it over 75% support.