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Veni, Vinci, vici

20 October 2020 By Christopher Thompson

Xavier Huillard’s plague hedge looks timely. The chief executive of 45 billion euro Vinci recently offered to buy ACS’s energy division for an enterprise value of 5.2 billion euros in cash and shares. With third-quarter results on Tuesday underlining the rocky outlook for Vinci’s airport unit especially, bumping up the proportion of more predictable revenue makes eminent sense.

A deal, currently under negotiation, would represent brisk business for both companies. The minimum 2.8 billion euros in cash that Madrid-listed ACS may receive could eliminate its net debt and boost shareholder payouts. The balance paid in shares, equal to roughly 5% of Vinci’s market value, would give ACS some upside if the Gallic acquirer’s stock rises.

In turn, Vinci will boost the proportion of revenue generated by its energy division to over two-fifths of group sales, from 29% in 2019. The unit, which does maintenance work for utilities, oil and gas companies, has proved robust throughout the pandemic: sales dropped by a modest 8% in the first half on a like-for-like basis, compared with 17% for the group. Meanwhile, a slew of ACS’s renewables assets included in the deal gives Huillard exposure to fast-growing green energy.

Resilience matters because the pandemic has hit Huillard’s other main businesses hard: like-for-like sales from operating airports, toll roads and construction work fell by between 12% and 56% in the first half. And although the company said some divisions had recovered in the third quarter, Huillard expects full-year earnings to fall “significantly” from last year. Analysts don’t expect group revenue to recover to 2019’s levels until 2022, according to Refinitiv data.

The headline deal price, at roughly 8 times ACS’s energy division’s trailing EBITDA, looks reasonable enough. But a probable lack of any cost savings means that Huillard is sailing close to the wind. Assume the acquired business makes 552 million euros of operating profit in 2022, as analysts at Bank of America reckon. Vinci would get 392 million euros back that year from its investment, using a 29% tax rate. That gives Huillard a 7.5% return – a whisker above Vinci’s probable 7% cost of capital, as estimated by Morningstar.

That means investors, who have sent Vinci’s shares down 25% this year, should support the deal. Recent moves by European governments to tighten lockdown restrictions only add urgency. Huillard is wise to pay up for safety.


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