No Pain No Gain: Acquisition fever proves that it pays to be patient

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The Independent Online

For the second time in little more than a year, a takeover bidder is stalking MacLellan, the support services group that has been a constituent of the No Pain, No Gain portfolio since 2001.

The shares were 65.5p when I alighted on them; they are now around 112p. They are probably fairly rated on trading grounds, but with a predator hovering, there's a chance they'll move higher.

The prospect of corporate action emerged while I was holidaying in Lanzarote. An apparent leak forced John Foley, the chief executive, to reveal "an indicative approach".

A few days earlier, he had justified his supporters' faith by producing splendid figures. At the pre-tax level, the year's profits were up a staggering 244 per cent to just over £5m.

As I have said on several occasions, MacLellan's profile has suffered from rafts of special charges distorting its results. It has been highly acquisitive and the resultant exceptional costs and inevitable goodwill amortisation damaged the "true" pre-tax figure.

Goodwill influences have again made an impact; they amounted to £3.8m. In the previous year, goodwill and special charges emerged at £5.3m, shredding the pre-tax to a mundane £1.5m. Still, many in the stock market don't mind a pre-tax figure plus the goodwill consideration.

The combined £8.8m out-turn should grow to £10.2m this year. However, for the dwindling band of purists, a "true" pre-tax of £6.6m is expected.

The year's dividend is increased to 1.25p and the comments accompanying the figures strike a confident tone. The group provides 60 different services (including cleaning and security) to more than 1,000 customers. It operates at some 3,500 locations, including Stamford Bridge, the home of Chelsea Football Club.

With debt cut from £14.1m to £8.2m and nearly £30m of banking facilities, MacLellan, if left to its own devices, is likely to resume its takeover adventures. Bob Morton, the chairman, appears keen to expand.

But Messrs Morton and Foley may not remain in control. If they surrender they will, I am convinced, demand generous terms.

Last year's takeover talks are thought to have foundered on price. It is believed the bidder, rumoured to be Spice Holdings (another support services group), was prepared to offer, probably through a share exchange, around 80p a share. The Morton-Foley duo insisted nothing short of 100p would suffice. The stance was clearly justified.

Whether Spice has returned and is prepared to offer more is not clear. Another contender is the much bigger MITIE support services group, but it could have its hands full after lashing out £74.8m for Rentokil Initial's security business.

The corporate activity at MacLellan, plus its strong trading, underlines that patience often pays off. On occasions, it seemed the shares were destined to stay on the investment community's unloved and unwanted list. But hanging on has proved worthwhile, even if the latest talks break down.

In my absence another portfolio member, Georgica, was rumoured to have attracted a predator. The shares jumped to 140p but fell back when it said it could not account for the sudden strength other than recognition of the bowling-to-snooker group's "intrinsic merits". They are now 128p, against an 87p buying price.

It is no secret that Georgica, which has this week reported rather mixed quarterly trading, wouldn't mind being a takeover target. Indeed, it seems likely it will indulge in the splits - selling its two divisions - if a bidder fails to materialise.

Last year, the portfolio was enriched by three takeovers - Allied Domecq, the wine and spirit giant, fell to Pernod Ricard of France; Burtonwood, a pubs chain, was swallowed by Wolverhampton & Dudley Breweries; and cider-maker Merrydown yielded to an unquoted drinks group.

With MacLellan in the firing line, Georgica subject to speculation and the stock market in something of a takeover ferment, it could be that the portfolio will be a hive of bid activity again this year. I remain convinced that Scottish & Newcastle Breweries, one of its two Footsie stocks, is a strong candidate for some form of corporate interest.

Only a little while ago Anheuser-Busch, the world's biggest brewer, was said to be looking enviously at Britain's last remaining major beer group.

Still, even without a bid, Scottish shares are frothing nicely and the portfolio remains happy to stick with the producer of Fosters and John Smith's.

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