The lower-priced ASX share market is filled with opportunities for the informed investor. The fall in share prices is prime time for takeovers by cashed-up companies. The BHP Group Ltd (ASX: BHP) CEO Andrew McKenzie stated as much at a recent conference in Sydney.
The takeover deal
At the beginning of this week, Zenith Energy Ltd (ASX: ZEN) announced it would unanimously accept the takeover offer made by a subsidiary of private equity firm Pacific Equity Partners.
Based in Western Australia, Zenith provides alternative energy sources to remote communities. The company has clients across Australia and South East Asia where it provides a range of build-own-operate business models. Zenith is able to boast a total power generation capability exceeding 384MW with a pipeline of an additional 450MW. Its FY2020 H1 revenue was up by over 28% to $29.4 million.
The takeover values Zenith's equity at approximately $150 million and an enterprise value of approximately $250 million. This is the equivalent of $1.01 per share. At the time of writing, the Zenith share price is trading at $0.965. So, this will deliver a return of 4.7%.
Personally, I would limit purchases to no more than $0.97 at the absolute highest and try to get shares for $0.96. There is a high likelihood of a motivated seller in today's market.
The benefits
The Zenith share price collapsed by 10% in the first week when the market started to react to coronavirus. It then jumped a whopping 39% on March 9 when the company announced the takeover. This means 4.7% is still on the table at the time of writing.
The board has declared its support as the price represents an earnings multiple of 9.3 on CY19 earnings before interest, taxes, depreciation and amortisation (EBITDA). Importantly, this buyout is not subject to financing or due diligence. This adds to the level of certainty that this deal will go through.
As of March 9, the board was working to see if a franked dividend payment was possible. While remaining within the $1.01 cash offer per share, this would bring an additional tax credit with it which may be desirable to specific investors. The takeover has a few standard hurdles to jump first and is due for implementation on June 22.
Foolish takeaway
I truly love finding deals like this where I can lock in profits at a pretty low risk and within a short time frame. With the market share prices depressed, the chances of increased takeover activity are very high.
In this case, for investors, there is a high likelihood of a 4.7% profit within about 3 months.
