EQT has little wiggle room in British LBO battle

Intertek

05/05/2026 11:24

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Liam  Proud

LONDON, May 5 (Reuters Breakingviews) - In a takeover defence, the target's board is supposed to push the bidder to the limits of what it can justify paying. Intertek ITRK.L may be very close after receiving a third proposal from EQT EQTAB.ST on Tuesday, which values the London-listed testing and inspection company at 10.3 billion pounds ($13.9 billion) including debt. The saga offers little cheer for other private equity groups hoping to target UK companies.

Despite the increasingly noisy bid battle, both EQT and the Intertek board probably agree that the company should be broken up. The key question is what return the Swedish group stands to earn from a split at the current price — and therefore whether it can afford to pay more than the 58 pounds per share currently on offer. Assume the group run by Per Franzén intends to lever Intertek up to 6 times EBITDA, implying debt of 4.7 billion pounds, and its equity cheque would total 5.6 billion pounds.

It would be logical for EQT to quickly offload Intertek's energy and infrastructure business, worth perhaps 1.9 billion pounds, based on an average of six analysts' valuations. The Swedish group could then pay itself a 940-million-pound dividend, if it kept leverage flat at 6 times EBITDA. EQT would presumably hope to boost revenue growth at the remaining business, known as testing and assurance. Generously assume the top line rises 8% a year, which compares with 6% in organic terms between 2022 and 2025, according to UBS. Also assume EBITDA margins stay flat at 30%, since Intertek already looks efficient compared with rivals. On that basis, EBITDA after five years would be 850 million pounds.

In a rosy scenario, the buyout group could sell that remaining business for 20 times EBITDA, which is close to the current multiple of richly valued rival UL Solutions ULS.N. The implied enterprise value for testing and assurance would be 16.9 billion pounds. Deduct debt, with leverage falling to around 3 times EBITDA by 2031, and the cash due back to EQT would be 14.3 billion pounds. The internal rate of return (IRR) from both the dividend and the sale proceeds would be 20%.

That's hardly a home run. A 20% IRR, before fees, is probably the minimum acceptable level for private equity dealmakers. And the exercise above is close to a best-case scenario. If revenue growth is 7%, not 8%, and the sale multiple is 18 rather than 20, then EQT's return would fall to a mere 16.4%.

Nonetheless, Intertek may yet reject EQT's latest proposal. After all, the Swedish group has not declared its current bid "best and final", suggesting perhaps room for one more bump. Still, Breakingviews calculations indicate that there's little scope now for a big raise. The implication is that the Intertek board has so far done its job, pushing EQT close to breaking point. That's welcome in a market where directors are sometimes accused of rolling over too easily.

($1 = 0.7387 pounds)

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CONTEXT NEWS

EQT on May 5 said it had submitted a third bid proposal to Intertek, under which shareholders in the British product-testing firm would receive 58 pounds per share in cash.

Intertek on April 24 rejected the private-equity firm's second bid of 54 pounds per share, saying the proposal fundamentally undervalued the company and its prospects.

Shares in Intertek were trading at 51.90 pounds as of 0842 GMT on May 5, or roughly 11% below the latest offer price.

Intertek is composed of two very different businesses https://www.reuters.com/graphics/BRV-BRV/egvbewydepq/chart.png

(Editing by Neil Unmack; Production by Streisand Neto)

((For previous columns by the author, Reuters customers can click on PROUD/liam.proud@thomsonreuters.com))