What Eleco's takeover premium really measures

On 10 September a private-equity firm reached across the Atlantic and offered 235p a share in cash for Eleco, a small British maker of software for the construction industry. The bid, from Accel-KKR of California, values the whole company at £207.6m and carries a premium over the last closing price of close to 75%. The shares, which barely trade on London's junior AIM market, jumped by roughly 70% at the news, almost to the offer itself. Most people will read this as the story of a generous buyer and delighted owners. It is better read the other way round: as a comment on what a thinly traded public market was refusing to pay for a company that was growing, profitable and free of debt.

Consider where the "premium" starts. The offer is 74.7% above the closing price of 134.5p on 9 September — a price that was itself below Eleco's average over the past year. Measured against the twelve-month volume-weighted average price, the bid is nearly 78% higher. In plain terms, for a year the market was willing to attach to this business barely 57p for every pound Accel-KKR now offers. That gap is not a pop on deal chatter. It is the persistent discount under which a sound company sat for months.

A price the float never paid

The fundamentals say the discount had little to do with Eleco's quality. In the year to December 2025 revenue rose 20% to £38.8m, gross margins were a software-like 89.6%, and 81% of revenue was recurring — subscription and annualised-licence money that repeats without a fresh sale. Cash at year-end was £16.3m, with no debt, and adjusted operating profit (EBITDA) grew 32%. None of that is a distressed asset. Yet on the day before the bid the whole equity was valued at roughly £119m, against the £207.6m a buyer with patience would pay.

The buyer's mathematics are revealing: about 20.2 times EBITDA, on an enterprise value of £192.4m. For an unglamorous construction-software firm, that is a healthy private-market price — not cheap, but defensible for a business with 90% margins and an 81% recurring base. The point is that the public market never got anywhere near such a number. The discount was the price of being small, lightly traded and in a sector — construction — the market distrusts when interest rates move.

Why a private owner can do better

The board's own reasoning concedes the limits of its listing. It cited limited daily liquidity on AIM, the cyclicality of construction, and the execution risk of investing in new technology and artificial intelligence. Under public scrutiny, Eleco's management had to balance a 20% rise in research spending (15% of revenue) against the market's appetite for short-term results. A private owner faces no such trade-off: Accel-KKR can fund the cloud and AI investment without a quarterly audience, and can wait out the construction cycle that spooked the market.

The offer is a scheme of arrangement under English law, which needs approval from shareholders holding 75% of the shares that vote, plus a separate special resolution at a general meeting. Owners representing 45.2% have already committed — the co-founder family interests (Allen & Co and the Ketteley family) hold 23.4%, and four institutional investors have given letters of intent. Approval therefore looks assured rather than doubtful. Completion is expected in the first quarter of 2027.

What is left on the table

That timetable frames what remains for a holder choosing today. The shares trade just below the 235p offer, so the room left is slender — a couple of percent at most, paid months from now and contingent on a deal that could still founder on regulatory or shareholder noise. The financial gain has, in effect, already been delivered; what an investor in the residual spread is really buying is completion risk at a tiny premium.

The wider lesson is the one the deal keeps quiet. Across Britain's junior market and across America's small-cap exchanges, the same arbitrage repeats: unglamorous, cash-generative businesses drift at a discount because floating them costs them more in scrutiny than it returns in capital, and the private market eventually steps in and charges the public one for the exit it failed to supply. A takeover premium this size is rarely a measure of a generous buyer. It is a bill presented by the market for its own neglect. For anyone who owned a thin float of a good company, the real question is never whether the bid is generous enough — it is what the company was worth that no market would say out loud.