MNHD, SODIC Potential M&A | New market leader potentially on the cards?
SODIC the best source of exposure to new entity. On April 10, MNHD voiced its intentions to discuss several options to merge with or acquire SODIC. Although we view the deal positively for both entities, we believe that SODIC is the better entry-point at current levels for exposure in the new entity. Our M&A valuation for SODIC implies an upside of c53% from current levels, with the same for MNHD implying c26%. That said, this does not account for goodwill, with SODIC’s brand equity and strong management which could warrant a premium to the company’s FV. MNHD has done very well in terms of presales in 2015-17 and has generated a total backlog of cEGP8bn, with focus now shifting towards fast-tracking construction activity to meet delivery plans and focus on its upcoming pipeline. We believe the likelihood of this deal going through could be high (pending regulatory approvals) due to synergies arising from this entity, strong upside to SODIC’s valuation, and the facilitation of an exit for MNHD’s main shareholders.
Combination creates entity with higher capacity to compete. MNHD brings in a large, well-located, cost-free, undisputed land bank, as well as a more imminent exposure to a recurring income pipeline. SODIC comes in with an established brand name, strong management team, a fast monetisation track record, and a significant net cash balance, providing ability to expedite the development of MNHD’s capex-heavy recurring income assets. We also see several synergies arising from this deal on the back of the consolidation, namely stronger manpower (strongest 2018-20e sales), diversified portfolio (land bank doubled), wider client base, and more favourable trading dynamics (larger market cap, increased liquidity, potential MSCI Egypt consideration).
Share-swap the most likely scenario, in our view. Looking at MNHD’s balance sheet (net debt of EGP300mn), in the case of an acquisition, we believe that a share-swap would be the most likely scenario. The alternative would be external funding (debt and/or equity) to finance the deal. That said, with the negotiations made public, we believe that some of SODIC’s major shareholders, along with overlapping shareholders will have already given the green light for the deal. In the case of an acquisition by share-swap, SODIC’s minority shareholders would be given the option to either participate in the swap or cash out (we expect the majority to opt for the former option). As per regulations, the deal could take up to c5 months (MNHD guiding for c2 months).
Madinet Nasr for Housing and Development is engaged in the development of land and buildings and facilities including acquisition of land and real estate sale and rental, dividing it and providing all types of facilities necessary for reconstruction and connected to it in Nasr City and other areas nationwide, the purchase and development, utilization, leasing and sale of all buildings and land. Co. can establish, manage and invest in all residential, administrative, touristic, recreational and all projects, and all real estate operations, financial, commercial and entertainment, as well as carrying out design, and engineering consultancy, and supervision of the execution by others.
Sixth of October Development and Investment Co SAE. Sixth of October Development and Investment Company SAE (SODIC) is an Egypt-based company engaged in real estate development projects and operations. The Company is specialized in lands acquisition and subdivision for the purpose of properties development, selling or leasing; construction and integrated construction activities and operations as well as other supplementary works; building, selling and leasing all various kinds of real estate properties; urban communities development; working in the field of tourist development and in all tourist establishments field including building , managing , selling or utilizing hotels, motels, restaurants and tourist villages, as well as sporting, entertainment, medical and educational buildings. The Company's subsidiaries include, among others, SODIC Real Estate Services Company, Sixth of October for Development & Real Estate Projects and Move-In for Advanced Contracting Co SAE.
CI Capital is a diversified financial services group and Egypt’s leading provider of leasing, microfinance, and investment banking products and services.
Through its headquarters in Cairo and presence in New York and Dubai, CI Capital offers a wide range of financial solutions to a diversified client base that include global and regional institutions and family offices, large corporates, SMEs, and high net worth and individual investors.
CI Capital leverages its full-fledged investment banking platform to provide market leading capital raising and M&A advisory, asset management, securities brokerage, custody and research. Through its subsidiary Corplease, CI Capital offers comprehensive leasing solutions, including finance and operating leases, and sale and leaseback, serving a wide range of corporate clients and SMEs. In addition, CI Capital offers microfinance lending through Egypt’s first licensed MFI, Reefy.
The Group has over 1,700 employees, led by a team of professionals who are among the most experienced in the industry, with complementary backgrounds and skill sets and a deep understanding of local market dynamics.
CI Capital has been recognized as the “Best Investment Bank in Egypt” by EMEA Finance for four years running from 2013-2016, and by Global Finance in 2014 and 2015.
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