Shelly Group

Schneider Electric has announced a voluntary takeover offer for Shelly Group at a price of €70 per share, implying a transaction value of €1.2bn. Schneider Electric has already agreed to acquire 28% of the share capital of one of the founders, while the other founder, holding 29% of the shares, will tender his shares through this offer and reinvest part of the proceeds in Schneider Electric for a period of at least 3 years.

Shelly group is a provider of smart home and IoT solutions with a strong sales presence in Europe. We expect this acquisition to bolster Schneider Electric's presence in the Residential market in Europe and in our view, Shelly group's offerings will also reduce the cyclicality of its more traditional exposure to this market. We believe that the consideration paid is reasonable given the growth profile and operating margins of the group. This will keep the leverage towards the high end of the group's targets but we view this as effective capital allocation as the acquisition is certainly a right fit.

For Shelly, we believe the price is disappointing. Indeed, our target price is currently set at €75 per share, a level we deem conservative given the difficulty to find high-growth and high-margin comps. Our own view is better assessed with the DCF, returning a valuation of €85 per share, an amount closer to the fair value in our opinion. Given the complaints we heard from investors about the €70 price when it first circulated a few weeks ago, we think a successful takeover is unlikely at this stage.

We still expect a positive share price reaction this morning given yesterday’s close of €64.5 per share, but shareholders might be better off waiting for a revised offer.