After years of waiting and speculation, market agency Creston(LSE: CRE) has finally received a bid approach.
Today it was announced that RedWhiteBlue Digital Marketing Services Holdings Ltd -- an investment vehicle of the Isle of Man offshore fund manager DBAY Advisors -- has made a 125p per share cash offer to shareholders of Creston, valuing the company at a total of £75.8m. As well as the 125p per share cash offer, shareholders who are on the register at close on 2 December, 2016, will be entitled to a 1.42p per share dividend, bringing the total deal value to 126.42p per share.
Creston's management is recommending that the company's shareholders accept the offer as it is "fair and reasonable" considering the company's current position. Just under 5% of shareholders have already made their support for the deal known to the buyer.
Alongside the bid announcement, Creston also published its half-year results for the six months ended 30 September 2016, which are nothing to shout about. Headline revenue came in flat at £40m for the period, but fell 4% on a like-for-like basis. Headline profit before tax grew 13% to £4.5m, and headline diluted earnings per share rose 16% year-on-year to 5.8p from 5.0p for the first half of 2015.
Reading through the group's first half report, it becomes clear why Creston's management unanimously supports the buyout offer for the company. Revenue growth has ground to a halt and management notes that the "challenging economic and trading environment" is proving to be a serious headwind to growth.
And further revenue compression is expected as "increased economic uncertainty adds to the challenges already faced by clients as they experience their own business transformations within their markets." In plain English, this statement implies that if Creston remains an independent group, investors should not expect explosive profit or revenue growth.
With such an uncertain outlook ahead for Creston, it makes sense that the company's patient investors take the cash offer of 125p from RedWhiteBlue.
Past performance lacking
Over the past five years, Creston has really struggled to produce a decent return for shareholders. Since November 2011 to close of business yesterday, the shares have risen only 25% excluding dividends, revenue has increased by 15% and pre-tax profit has fallen. In stark contract, over the same period shares in sector leader WPP have risen 171%, excluding dividends.
For the year ending 31 March 2012 Creston reported a pre-tax profit of £10.8m, and for the year ending 31 March 2016, City analysts have pencilled in a pre-tax profit of £10.4m. Earnings per share have fallen to 12.1p from 12.3p over the same period.
Still, the one metric that has grown over the past five years is Creston's dividend payout to shareholders. For 2012 the company paid out 3.5p for the full year; today the payout stands at 4.6p, growth of 31% over the period.
Overall then, Creston has struggled to grow over the past five years and it looks as if the company is now worried about what the future holds, which does not bode will for revenue growth. With this being the case, it's probably best for investors to use the 125p cash offer to jump ship.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.