Ordina is the largest independent IT-services provider of the Netherlands and its business can be characterized as mainly temp labor. The company is active in the Benelux and serves customers in the segments Public, Finance, Industry and Healthcare.
Lately rumors are circulating in the market about parties interested in acquiring Ordina. The possibility of a bid has urged the supervisory board of Ordina to request a valuation of the company, making sure shareholders’ interests would be maximized in such a situation.*
Growth in the IT-industry is expected to outperform the economy for years to come. But Ordina operates in the competitive segment of IT-services, which is sensitive to the economy and underperforms the other segments of the IT-industry.
In essence, Ordina is a traditional firm in a fast-changing environment: new technologies, new business models and new competitors. Due to external forces and internal weaknesses, Ordina is forced to transition to an organization with a lower cost structure that targets higher margin markets. Ordina is locally the largest independent IT-services provider and is well positioned, but past acquisitions weigh heavy on its organization and the success of current reorganizations is important.
The performance of the company over the last 6 years confirms that Ordina is at a tough spot: revenue declined by 4,9% and shareholder value was destroyed every year. But EBITDA and cash flow did improve slightly during the analyzed period as did the ratios on key value drivers.
Looking forward, Ordina faces challenges and opportunities in a complex and competitive environment, while the economy is slowing down. The speed and effectiveness of Ordina’s reorganization will determine into a large extent its future performance. Two views on these developments are the basis for the scenarios on which Ordina’s valuation is calculated.
To analyze whether Ordina should unlock its full potential independently and follow its own course, or whether shareholder value would be maximized with a sale to a strategic buyer, its company value has been determined both stand-alone and in a transactional context.
The value that shareholders may expect if Ordina pursues its own course, has been calculated with a probability weighted discounted cash flow analysis of two scenarios. The resulting equity value implies a share price of €2,22, which is well above €1,74, the reference share price at the valuation date. In other words: the company is trading at a discount. This finding is supported by a comparable company analysis, which implies a share price of €2,50.
In the transactional context the expected value has been calculated with a discounted cash flow analysis including synergies. The resulting equity value implies a share price of €2,66. Comparable transactions however indicate that buyers probably aren’t willing to pay for the full synergy potential and that a price of €2,35 per share is more likely. The latter would imply a market-conform premium of 35% on top of the reference share price and would suggest a premium of 6% on top of the calculated stand-alone value.
The supervisory board is recommended to deny offers below €2,22, as they don’t reflect Ordina’s stand-alone potential. The priority share is an effective tool for that.
The supervisory board is advised to target a market conform price of €2,35 but to recommend to Ordina’s shareholders a bid that exceeds the stand-alone value of €2,22.
*Note that this valuation is a fictional case to showcase valuation techniques. The business valuation is executed 'outside in', based on public information and without access to management.
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