In principle, analysts and major investors consider a possible takeover offer to be quite interesting in the context of the evaluation currently being discussed. However, the experts also agree that at least two risks put the conclusion of the sale in question: on the one hand, the risks on the bank’s books, and on the other hand, the necessary approval from the supervisors.
Last Thursday, Aareal confirmed in a mandatory notification that the holding companies Centerbridge, Towerbrook and Advent are interested in taking over the specialist institute. The valuation of 29 euros per share brought into play by investors would mean a premium of 23 percent on last Wednesday’s closing price.
After the takeover negotiations became known, Aareal’s share price shot up and on Friday the share closed at around 28 euros.
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“We can imagine that an offer of the amount we are now discussing would be of interest to many investors,” says a major shareholder in the real estate financier. Philipp Hässler, an analyst at Pareto Securities, also considers a possible price of 29 euros per share to be “quite attractive” in principle.
Particularly affected by the corona crisis
However, Hässler also sees significant obstacles to the planned deal. His own target price for the share is currently 21 euros. On average, the experts recorded by the Bloomberg information service put Aareal at a rate of EUR 23.50 over a period of twelve months.
According to Hässler’s assessment, the comparatively high proportion of non-performing loans is one reason for these cautious forecasts. Due to its focus on loans for commercial real estate such as shopping centers and hotels, the bank was particularly hard hit by the corona crisis. Above all, Hässler sees the “comparatively large hotel portfolio” as a risk.
Jochen Schmitt from Bankhaus Metzler also sees the quality of the loan book as a possible reason for a deal to fail. Aareal is planning risk provisioning of 125 to 200 million euros for this year, and financial circles say the bank is still very comfortable with this estimate.
Pressure on management
Aareal has only recently had a new boss in the form of the former Commerzbank board member Jochen Klösges. Most recently, the major shareholder Petrus Advisers had put considerable pressure on the management. He had requested a new and sustainable strategy from the bank. After a loss of 75 million euros in 2020, Klösges confirmed the forecast for this year of a positive result of 100 to 175 million euros in August.
The bank emphasized whether there will be a transaction or an offer to shareholders, “is currently uncertain”. But while Aareal rejected an advance from US financial investor Apollo years ago and refused to set up a data room at all, this time the money house is approaching the matter more openly.
In financial circles it is said that the potential bidders are currently examining the books, the negotiations are still in a very early phase. Neither Aareal nor the financial investors wanted to comment.
As a next step, the potential buyers and Aareal management would have to agree on a so-called “Investment Agreement” in which the main features of a deal would be laid down. The future of the IT subsidiary Aareon could play a key role here.
According to financial circles, at least some of the private equity firms are toying with the spin-off of the software subsidiary Aareon. A separation from Aareon is the medium-term goal, said a person familiar with the matter. With a spin-off, investors could increase the value of their involvement, because technology companies are currently valued significantly higher than financial stocks. In the past, Aareal Bank had repeatedly blocked attempts to separate the software subsidiary.
Last August, however, it sold a minority stake of 30 percent in Advent. There are long-term agreements regarding Aareon between Aareal Bank and Advent. However, it is an open secret in the financial sector that Advent would have liked to have acquired a larger stake back then. In financial circles, it is said that the bank’s management would hardly agree to an investment agreement that would result in the institution being split up.
Most important driver of the deal
The consortium of financial investors is led by Centrebridge, and in financial circles it is said that the US fund is interested in helping Aareal Bank expand with the help of money and expertise. Centerbridge has a dense network of real estate specialists, especially in the UK and the US, said a person familiar with the process. In cooperation with these experts, Aareal could grow internationally.
Analyst Hässler suspects the spin-off of the IT subsidiary Aareon as the main driver behind the deal. “You could sell the subsidiary to the highest bidder, then continue the rest of the bank, bring it back on the stock exchange or also sell it,” says the expert.
Hässler sees the attitude of the financial supervisory authority as decisive for the chances of success of the takeover attempt: “A veto by the supervisory authorities is likely to be the greatest risk for the potential bidders.” Although the supervisory authority has already approved sales by German banks to financial investors, such deals are being examined particularly thoroughly , especially since a possible sale of Aareon would weaken the bank economically. Analyst Schmitt from Bankhaus Metzler sees it similarly. The approval of the supervisory authority is not a sure-fire success, he warns.
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