Problems at its compliance division were one of the factors that weighed on the share price of business information group SAI Global, which this week has attracted a $1 billion approach from a private equity investor, according to the group's largest shareholder, Perpetual.
SAI Global said on Monday it had received an indicative proposal from private equity investor Pacific Equity Partners, which has signalled interest in bidding for the company at between $5.10-$5.25 a share.
However, any bid is conditional on SAI Global opening its books so that ''due diligence'' can be conducted by the bidder. It is believed SAI Global is in the process of drawing up a confidentiality agreement for PEP before opening the door.
It is unclear whether other bidders will come forward to also seek access to its books, to consider lodging an offer for SAI Global.
While there are a number of international competitors in compliance and assurance services, SAI Global's spread of activities, which also include information services to the property industry, for example, could be a disincentive for some bidders.
''We think its global peers will have a good look - the assurance services and compliance assets are attractive,'' said Garry Laurence, a fund manager with Perpetual Ltd. These units attract high valuations, but analysts regard the information services business as less valuable. Although the reach of this operation could interest an offshore bidder.
''Overseas groups may like some of the diversity,'' Mr Laurence said.
Despite the quality of SAI Global's assets, local investors have been unwilling to value the business on a par with its global peers.
''That's what's attracted private equity bidders - the sum of the parts is greater than the market price,'' Mr Laurence said.
SAI Global is facing the threat of declining margins in its information services division, with a newly automated system linking land titles offices, banks and lawyers. At the same time, its compliance division has faced several operational issues.
''The compliance division is going through its issues … It's the problem child and once fixed, the prospects will be significant,'' Mr Laurence said. ''This created the opportunity for private equity to come in.''
As the largest single investor with 13 per cent of the capital, Perpetual is in a position to block any bid for the company from succeeding.
''We're fund managers. We're always a seller at the right price,'' Mr Laurence said. ''We want to extract the best price for our clients. If the Australian market won't value it, then private equity will.''
Analysts said PEP has a potential advantage over rival bidders, thanks to its ownership of Link Services, a sharemarket registry service provider as well as Veda Group, a business information operator.
Most have a ''neutral'' stance towards SAI Global shares following the surge in its market price on Monday, when they rallied a sharp 15 per cent to $5.01. The shares added 2.2 per cent to $5.12 on Thursday.
Link Services has a stake in Property Exchange Australia which is automating property transactions between state government land titles offices, banks and lawyers, which will squeeze margins in SAI Global's property information arm
Analysts warned there is no certainty of a takeover offer emerging, while on Monday SAI Global said it would take a $7 million restructuring charge, which has triggered caution of more cuts to come.