Private equity firm Alchemy Partners has come to the rescue of beleagured UK software company Cedar Group with a £3.8 million lifeline for the stricken supplier. The 5 pence per share bid from Alchemy subsidiary Redac Ltd. offers Cedar a 56 per cent premium on its closing share price on 27th December – when financial offers were first revealed – but the value of the deal is humiliatingly low compared to the company’s peak market capitalisation of £964.4 million.
In a further boost Cedar’s lead creditor HBOS has agreed to write off £20.4m of Cedar's £38m outstanding net debt, by selling it for a nominal sum of £1. Both HBOS and Alchemy have already provided £5m each in short-term emergency financing. Redac will provide a further £14m of funding if the offer is declared unconditional with the bank putting in an extra £5m. But if shareholders reject the deal, the debt of £38m and the £10m emergency loan plus a 10 per cent premium become repayable on demand. Not surprisingly, Cedar's directors have unanimously recommended the offer.
Although Cedar has been in financial difficulties in recent months, Alchemy has been lured by its long tem revenue prospects. It has signed several new deals in the past six months, including one worth $16.5m with New York State Comptrollers, and has an order book of £56.2m. These plus its bargain basement, offer you can’t refuse valuation makes it an ideal purchase for Alchemy. Whether the firm can turn this particular piece of base metal to gold remains to be seen.