Why would management of a solid small cap entertain thoughts of a buy out? The UK’s Ascribe plc is one such (reviewed here back in March). According to its local rag management are upset at its “depressed” share price. Oh, an MBO might also better suit a more long-term (undefined) strategy.

Management might be unhappy they have not become wildly wealthy since flotation at 18p nearly four years ago but put it in some perspective. Now 27p the equity was at 63p mid 2007. A few minor financial earthquakes have since occurred in the wider world.

So here is a novel thought for management: just keep doing what you’re doing instead of lining Altium’s pockets with fees and jumping in the shark pool. You already own 14%; the fundamentals are excellent; and the firm yields 10% free cash. Nothing too flashy on the turnover front but very respectable double digit gains in recent years. And – some bitter news maybe – the company is not severely undervalued.

The only half-decent reason for a MBO might be if Ascribe plc wanted to do some serious and rapid acquisitions their paper could not, in today’s context, support. That ‘strategy’ would be a departure from what is working well enough. And it’s not as though PE are giving funding terms away either - or guaranteeing a more efficient path than the market to realizing value for owners.

Romantics like this scribe still believe that there is a medium-term (or longer) 100% correlation between fundamentals and valuation. But bucking a bad market is tough. There’s plenty of time for golf, chaps - this is called a cycle.

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