Key Takeaways
KKR & Co. and Energy Capital Partners are betting DCC's pivot to a pure-play energy business will unlock a valuation multiple that public markets have yet to grant the Dublin-based supplier.
The buyout firms raised their offer to about £66.72 a share on June 10, giving DCC a market value of roughly £5.7 billion, or $7.6 billion. Directors of the London-listed company, who rejected an earlier approach in April, said they are "minded to recommend" the sweetened bid to shareholders. Under Irish takeover rules, the bidders have until Wednesday to formalize the offer or face a six-month bar on making another approach.
"There is this multiple arbitrage while the market hasn't quite begun valuing DCC's remaining energy business correctly," said Charlie Williams, a securities analyst at Stifel who covers business-services providers. "I think the PE buyers have noticed that."
DCC shares closed at £61.90 on Thursday, below the offer price, signaling investor skepticism that the deal will close at the current terms. Fidelity International, which owns 6.9% of the company, said it would not accept less than £70 a share. The latest offer represented a 33% premium to DCC's volume-weighted average share price during the three months through April, according to Fitch Ratings.
The Valuation Gap That Drew Two Buyout Firms
DCC has operated energy, healthcare and technology divisions for years, but set in motion a strategy about two years ago to shed non-energy assets and concentrate on its larger, more profitable energy operations. It sold its healthcare unit and part of its technology group last year and is now seeking to divest Nexora, its audio-visual equipment and consumer electronics business. The company plans to rebrand as DCC Energy and has said it expects the focused business to generate twice the profit it recorded in 2022 within four years.
The valuation lag has been stark. Before buyout speculation emerged, DCC shares traded at roughly eight times operating profit, while UGI, a New York-listed natural gas and LPG supplier, trades at 10 to 13 times. That gap — roughly 25% to 40% — made DCC an attractive target for private equity, Williams said.
DCC's energy operations supply liquefied petroleum gas, biopropane, renewable dimethyl ether, diesel and gasoline across Europe and the U.S., including nearly 1,200 automotive filling stations. The company benefits from a diversified customer base across commercial and industrial sectors, with good geographic diversification, Fitch said in a report. Fuel storage tanks installed on customer properties create a captive base, while a volume-based flat fee added to fuel prices makes margins less sensitive to commodity price swings.
What a Deal Would Mean for the Bidders
Acquiring DCC would expand Energy Capital Partners' presence as a U.K. energy supplier. The Summit, New Jersey-based firm last year bought Grain LNG, the operator of a liquefied natural gas regasification terminal near London, alongside another investor. KKR, which last year added to its 30% stake in Enilive, the biofuels and car-sharing unit of Italian energy company Eni, is also deepening its European energy infrastructure footprint.
A slow-growing European liquefied gas market presents one challenge, Williams said. While customer-owned tanks protect DCC from competitors, they also limit expansion as rivals adopt the same approach. Still, DCC has grown significantly through acquisitions in recent years, buying several liquid-gas assets, and a still-fragmented market offers more consolidation opportunities.
The outcome hinges on whether KKR and Energy Capital Partners can bridge the gap with Fidelity and other holdout investors before Wednesday's deadline. If they fail to formalize, the six-month standstill under Irish rules would leave DCC to pursue its energy-focused strategy as a public company — a path that could eventually lift the stock as investors gain clarity on the new structure, but without the immediate premium a buyout would deliver.
This article is for informational purposes only and does not constitute investment advice.
