G4S plc (LON:GFS) (OTCMKTS:GFSZY) has apparently caught the interest of one buyer who is ready to get on board with the London-based company’s cash services business.


Charterhouse Capital Partners, a private equity firm, is getting together the finances for a $1.6 billion offer to buy the G4S unit, which transports cash to ATMs and banks. While neither side has confirmed it, reports from Bloomberg suggest that G4S plc (LON:GFS) (OTCMKTS:GFSZY) is formally aware of the offer but has only discussed it internally so far. In response, the security company is seeing some rare activity, and shares closed up at 3.55 percent today.

Cevian Capital getting closer to scoring a win

If this is indeed the case, then Cevian Capital, the Sweden-based activist hedge fund, could be getting closer to having its way. Cevian holds a 5.1 percent stake in G4S plc (LON:GFS) (OTCMKTS:GFSZY) and has previously pushed the company to divest parts of its ailing business. Carl Icahn has invested in Cevian Capital. The fund’s style of enforcing changes at companies is quite similar to how Icahn goes about it. Cevian Capital has come out victorious in several battles with company boards before, though the fund has only invested in European companies so far.

Cash services account for a quarter of G4S profits

The cash division accounts for 18 percent of the company’s revenues and makes up 28 percent of EBITA. JPMorgan’s analysts Robert Plant and Victoria Prior estimate that the current offer is worth 7.3x that of the unit’s projected EBITA for 2013, after overhead costs. The analysts also speculate that the bid could be only for the developed markets cash division; if so, the offer amounts to an EV/EBITA of 12.0x. The developed markets cash division is 13 percent of revenue and 18 percent of EBITA. JPMorgan Chase & Co. (NYSE:JPM) maintains an overweight rating on G4S, adding that, “valuation is too cheap if it can achieve the mid-high single digit organic revenue growth which management have targeted, driven by emerging market security (34 percent of revenues).”

UBS AG (NYSE:UBS) is not too excited about how Charterhouse Capital is valuing the cash services unit. George Gregory writes that the current offer, which is roughly 8.5x of 2013 EBITA, should not grant it serious consideration from the company.

G4S plc (LON:GFS) (OTCMKTS:GFSZY) has previously sold its cash services business in Colombia and Canada separately; the company sold Canadian cash services for $105 million to Garda World in August, and Columbian business to Iron Mountain Incorporated (NYSE:IRM) for $59 million.