During a week when most stocks were trending lower, the Sanne Group (LSE:SNN) share price was shooting higher. To be more exact, the FTSE 250 stock jumped 21% on Friday. Jumps like this usually catch my eye, as something significant must have happened. Given that it was a sizeable move in a positive direction, this leads me to think that it could be a worthy investment. But before I get ahead of myself, I need to investigate further.
What is Sanne Group?
Sanne Group is a provider of fiduciary services to financial companies. Although it falls under the category of asset management, it’s not an asset manager for retail clients like me. Rather, it provides administrative and other asset management services to alternative investors. These include private equity companies, hedge funds and private debt businesses.
The company had over £465bn of assets under management as of the release of the 2020 annual report. Sanne can make money either from servicing current funds better (leading to higher inflows), or if a client launches a new fund. It charges fees for the services it provides on the assets, so there’s a correlation between higher revenue and higher assets.
Why did the Sanne Group share price jump?
There was one reason for the large jump in the Sanne Group share price on Friday. The company announced that it was rejecting an offer from Cinven to be bought out.
A rejection of an offer might initially seem a negative thing. However, it shows that the management team has confidence in the current trajectory of the company.
What was interesting about the offer from Cinven (a private equity firm), was the offer price of 830p. For much of the past year, the Sanne Group share price was trading around the 600p mark. It did register highs around 700p last August, but nowhere near 830p. It’s around 720p as I write, down slightly on Monday.
Clearly, Cinven feels the company is worth 830p, hence the offer. So naturally the share price jumped as investors could see a clear divide between the current price and the Cinven valuation.
Could the price jump further?
Cinven has until June 11 to make another offer, based on the rules around these matters. I think this is another reason why the Sanne Group share price has jumped. If I believed Cinven would make another higher offer, then I could make a profit here. If the offer gets accepted and the company gets taken private, I’d receive the payment at the offer price.
So there’s a possibility of making a profit from buying now and then selling if and when a deal is agreed. But I’m an investor, not a trader and believe buying for that reason alone is risky. You see, if Cinven doesn’t offer more, then Sanne Group could be back to where it was initially.
So would I invest in it as a long-term play? The company is profitable (with a pre-tax profit of £20.5m last year) so I think it can survive on its own. Yet the share price may fall back to the previous range if future results don’t match the outlook potential buyers had put on it. Either way, it’s too much of a gamble for me. I won’t be buying the shares.
