Blackfriar: Spice shareholders should wait until the price is right

After an initially tough rejection of private equity group Cinven's advances, the Leeds-based utilities support services firm has been forced into talks.

Shareholders such as former chief executive Simon Rigby want to see Spice go "to a good home". By this, he means someone with money to invest in growing the business, and private equity fits the bill.

Analysts believe the second bidder, also thought to be private equity, will speed up the eventual sale of Spice.

"I believe in three to six months we won't be having Spice as a listed company," said one analyst.

For shareholders, who have tasted more lows than highs with Spice over the past year or so, this may be a timely chance to cash in their stakes. Shares in the group plunged as low as 27.5p in March, on fears over the group's then hefty debt burden.

But the Spice of then and now are two different stories. Under chief executive Martin Towers, the group has been re-focused on organic growth. It gave away its loss-making gas business to boost profitability and sold its telecoms business to cut debt.

Yesterday Spice said it has made "encouraging" progress into the US, where it believes its supply division could grow significantly. Its exposure to the squeezed public sector is just two per cent, and it faces regulated markets which must spend to upgrade the country's aging infrastructure.

With that in mind, and all that Spice has achieved in recent months, Blackfriar believes Mr Towers is right to hold out. Analysts speak of a price somewhere between 65p and 75p, which would value the group at up to 264m. If Spice is going to fall into private equity hands, he can afford to play the bidders off each other to extract the highest possible price.

The painful saga that has been Dyson Group's restructuring finally looks set to come to a close – with a relatively happy ending at that.

After almost two years of trying to find a viable future for the Sheffield group, this week management appeared to succeed, with a debt restructuring that gives hope to its 400 remaining employees.

Shareholders, as often is the case in these scenarios, were at the bottom of the pile and will be left with just 12 per cent of the group. But that little bit of something is better than the alternative of being completely wiped out by an administration.

If the deal goes through, Dyson will continue as a private company, with financing in place and exposure to recovering automotive sector. Its legacy ceramics businesses have been sold to management, allowing the company's heritage to continue.

Blackfriar believes the struggles of the 200-year-old company are a pertinent lesson of the risks of carrying too much debt. The group substantially increased its gearing in the years before the downturn to invest in its Saffil, Ecoflex and Carolite businesses.

The first two were a relatively successful expansion, but little is heard of Carolite these days, a product which claimed to speed up computer hard drives.

When the recession arrived, its profits were not enough to meet covenants or cover payments into its pension schemes.

Dyson's debt was unsecured, making the job of its banks Lloyds TSB and Svenska Handelsbanken all the more complex.

But this gave Dyson a bargaining position, which allowed it to eventually reach agreement on the restructuring. Banks, who will hold 51 per cent of its equity, now have an interest in seeing it succeed.

Blackfriar believes shareholders ought to vote in favour of the restructuring.

They may even be able to recoup some of their investment in the distant future.