Aukett Swanke – Value Trap or Bid Target?

With news of the acquisition of Waterman (LON:WTM) by CTI Engineering (Japan) still fresh in investor’s minds; this being the latest in an exhaustive list of M&A activity in this sector over the last 10 years, I am being increasingly drawn to the potential value of AIM micro-tiddler Aukett Swanke (LON:AUK).

As noted above, recent M&A in the construction consultancy space includes:
- Atkins – acquired by SNC Lavelin (April 2017)
- Mouchel – acquired by WSP (October 2016)
- Sweett Group – acquired by Currie & Brown (Jun 2016)
- BDP – acquired by Nippon Koei (March 2016)
- 360 Architecture – acquired by HOK (Jan 2015)
- Hyder – acquired by Arcadis (Sep 2014)
- Parsons Brinkerhoff – acquired by WSP (Sep 2014)

N+1 Singer recently included a useful table of comparable M&A transaction in this sector in their recent ‘Corporate’ Note for Driver Group. This highlighted that valuations of M&A transactions are typically in the order of 6-10 EV/EBITDA and correlate with my own database of deals over recent years which shows 0.7 x Sales as a useful benchmark.

My own analysis suggests Aukett Swanke (LON:AUK) could be worth between £8-18m mcap compared to the current <£4m. That’s attractive to me on a risk / reward basis.

There are lots of reasons not to like Aukett Swanke (LON:AUK).

- Serial history of disappointing / lacklustre / lumpy trading
- Operations spread across volatile / challenging geographies incl. Middle East & Russia.
- Management not Shareholder friendly
- Micro-cap
- Results due later this month will be poor.
- Risk of delisting
- Typically low margin 'design' work compared to more specialist consultancy work undertaken by Waterman (LON:WTM), Driver (LON:DRV) and WYG (LON:WYG) etc 

All of that said, they are a reputable Architect, management own a lot of shares, they have recently rationalised their London office space and are…

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