RCS - Iconik Capital KG - Anexo Plc (ANX.L) (LON:ANX) - Open Letter

AnexoAnnouncement

Tue 11:00

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RNS Number : 6161G  Iconik Capital KG  29 April 2025

Anexo Group plc

5th Floor, The Plaza

100 Old Hall Street

Liverpool

L3 9QJ

 

 

28 April 2025

 

Concerns Regarding Potential Takeover Bid and Shareholder Value

Anexo Group Plc (ANX.L) (LON:ANX)

ANX.L / LON:ANX / GB00BF2G3L29

Dear Independent Directors,

 

Iconik Capital KG currently holds a significant stake of 3.5 million shares
(approximately 3%) of Anexo plc's (https://www.anexo-group.com
(https://www.anexo-group.com/) ) issued share capital. We are writing to you
to voice our utmost concern regarding the potential takeover bid being
considered by DBAY Advisors Limited, Alan Sellers, and Samantha Moss.

 

We do feel the need to be absolutely clear: as independent directors, your
fiduciary responsibility demands that you act exclusively in the best
interests of all shareholders, with a steadfast commitment to the rights of
minority shareholders. Any Board action that undermines the interests of
minority shareholders will not be acceptable.

 

We urge you to rigorously assess any potential offer against a fair and
objective valuation of the company and that you undertake an immediate and
rigorous defense against this predatory attempt to seize control of Anexo plc
at a fraction of its intrinsic value.

 

·      Significant Undervaluation: Anexo's shares are currently trading
at a P/B multiple of less than 0.5x, a P/E multiple of less than 5x and an
EV/EBIT multiple of less than 5x, a significant discount to intrinsic value
and also to industry peers in the more generic legal services industry. The
company is significantly undervalued from an asset value perspective as well
as from a current and forward earnings perspective.

 

·      Underlying Change in Business Mix:  Anexo's strategic business
mix shift towards housing disrepair (HDR) claims is poised to significantly
enhance its working capital cycle. HDR claims typically settle within 7-9
months, a stark contrast to the 18-24-month duration of credit hire claims.
This accelerated settlement cycle translates to faster cash conversion,
bolstering the company's financial flexibility, and capacity for reinvestment.
Management confirmed in its most recent Trading Update that Housing Disrepair
work continues to make an increasing contribution to the Group's overall
performance.

 

·      Emissions Litigation Settlements:  With ongoing litigation
against Mercedes-Benz and other manufacturers, the potential for further
substantial cash inflows is high, as these claims have already been expensed,
any settlement would directly benefit the bottom line. If valued in line with
the VW case that would translate into a current conservative net cash
improvement in excess of £20 million from these 37,000 claims. Hearings and
conferences have already taken place showing positive signs and more are
scheduled to take place between now and July 2025. A positive effect on net
debt appears imminent.

 

·      Debt Facilities:  The Group completed two new financing
facilities that resulted in significant savings in interest costs throughout
the lifetime of the facilities. In addition, Anexo's finance costs in 2023
were unusually high due to a one-time success fee payment to funders of its
initial Volkswagen emissions claim. The success fee payment will not recur in
future periods.

 

·      Previous Approach at 150p / share:  DBAY's prior consideration
of a 150p per share cash offer in 2021, coupled with Anexo's current
demonstrably stronger position due to a more favorable business mix,
substantial growth prospects, and an imminent positive cash flow windfall
strongly indicates that a lower valuation would be unwarranted.

 

·      Bond Turner Efficiency Gains: Anexo's legal services division,
Bond Turner, has the potential for significant efficiency gains through the
implementation of AI Large Language Models (LLMs) in case management. Since
Bond Turner handles a large volume of standardized cases, AI implementation
will lead to a substantial reduction in headcount (a significant cost factor),
further enhancing profitability. The amount of cases managed per fee earner
will increase significantly in the future.

 

·      Growing Demand for Housing Disrepair and Credit Hire:  The
demand for both housing disrepair (HDR) and credit hire services is
experiencing robust growth, fueled by several factors. The UK is grappling
with a cost-of-living crisis, pushing more individuals into the impecunious
category, thereby increasing the need for credit hire services. The gig
economy, with its reliance on vehicles, is also expanding rapidly, further
amplifying this demand. On the HDR front, a significant portion of UK rental
properties fail to meet the Decent Homes Standard, with many exhibiting
hazardous damp and mold issues. Anexo's strategic positioning in both these
high-growth markets, coupled with its efficient case management and strong
referral network, positions it to capitalize on this escalating demand.

 

We therefore request that the Independent Directors undertake the following
actions to ensure the fair treatment of all shareholders:

 

·      Conduct a Thorough and Independent Valuation:  Engage an
independent financial advisor with expertise in valuing companies in our
sector to provide an objective assessment of Anexo plc's intrinsic value. This
valuation should be made transparent to all shareholders.

 

·      Rigorous Scrutiny of Any Potential Offer:  Carefully evaluate
the terms of any formal offer against the independent valuation and ensure
that it provides a fair and reasonable premium for control, reflecting the
company's true worth and future potential.

 

·    Categorically reject any suggestion of a takeover facilitated through
the issuance of loan notes. This structure unfairly prejudices shareholders by
compelling them to exchange equity for debt, fundamentally altering their
investment at the current depressed share price and depriving them of the
potential for equity-based returns, in particular given the undervaluation of
the company. Moreover, it allows the acquirer to leverage Anexo plc's future
cash flows to fund the acquisition. In addition, illiquidity of these notes
will prevent minority shareholders from being able to sell them (at a fair
price), which is a significant disadvantage, particularly considering the
significant amount of retail investors in Anexo. Finally, the valuation of
loan notes is complex and subjective, creating a potential for the bidder to
undervalue the consideration offered, particularly given the information
asymmetry between the bidder and the minority shareholders.

 

·      Actively Represent Minority Shareholder Interests:  Ensure that
the interests of all shareholders, not just the majority, are given due
consideration throughout the takeover process.

 

·      Maintain Open Communication:  Keep all shareholders informed of
the progress of any potential bid and the Board's assessment of it.

 

We believe that accepting an offer that undervalues Anexo plc would be
detrimental to the interests of minority shareholders and would not reflect
the true value and future potential of the company. We trust that you, as
independent directors, will diligently exercise your responsibilities to
ensure a fair outcome for all stakeholders.

 

In any event, we are prepared to deploy all necessary measures to expose the
inadequacy of any undervaluation. This includes actively engaging with the
public to draw attention to the severe disparity between the offer price and
Anexo plc's true worth.

 

We are also prepared to vigorously contest the fairness and equitability of
any proposed scheme of arrangement before the sitting judge, ensuring that the
voices of minority shareholders are heard and their interests protected.

 

Yours sincerely,

 

Frank Stuber

Managing Partner, Iconik Capital KG

stuber@iconikcapital.de

 

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