When I covered shares in identity management business GB Group (LSE: GBG) back in early July, I said that I saw a lot of value in the stock near 400p. I also said: “I wouldn’t be surprised if GB attracted takeover interest” at that level.
Fast forward to today, and that now looks like a great call. Last week, GB Group’s share price shot up more than 30% after Chicago-based private equity firm GTCR said that it is considering a possible cash offer for the AIM-listed technology company.
I hold GB Group shares in my own investment portfolio. So, I’m pretty happy that the share price has received a boost on the back of the takeover talk. But what’s the best move now, though? Should I take my profits and move on to other investment opportunities? Or hold on to see what happens?
GB Group takeover: what we know
Let’s start by looking at what we know about the potential takeover.
To be clear, a formal takeover offer has not yet been made. In a brief statement, GTCR said: “There can be no certainty that any firm offer will be made, nor as to the terms on which any firm offer might be made.”
However, GB Group has said that any proposals received will be evaluated by its board of directors along with its advisers.
It’s worth noting here that, in accordance with Rule 2.6(a) of the UK Takeover Code, GTCR has until 5pm on 4 October 2022 to either announce a firm intention to make an offer for GB Group or announce that it doesn’t intend to make an offer for the company.
This means that we should have more details about this potential takeover offer in the next few weeks.
What I’m doing now
In light of the information above, I’m going to be holding on to my GB Group shares for now. There are a couple of reasons why.
Firstly, I’ve been burnt in the past by selling shares soon after a takeover was announced. I did this with Sky shares back in 2016, and they ended up rising much higher after multiple bidders emerged.
If GTCR does make a bid for GB Group, I wouldn’t be surprised to see more bidders emerge. To my mind, there’s a lot to like about this company. Not only does it operate in a high-growth industry, but it also has a wide range of blue-chip customers such as Revolut, Volkswagen, and BNP Paribas.
Secondly, I’d expect GB Group’s board to negotiate a good deal if an offer is made. It’s worth noting here that last year, shares in GB Group were trading above 900p. Now, tech valuations were excessive last year and market conditions have changed this year. But I would have thought 750p+ is achievable for a takeover offer. That would equate to around 35 times this year’s earnings forecast.
Now, of course, this approach of holding on for further gains could backfire on me. If no offer is made, GB Group’s share price is likely to fall back.
However, given that I’m a long-term investor and I’m bullish on the company and its growth prospects, that would not be the end of the world for me.