Pacific Equity Partners’ “massive” offer for Johns Lyng Group has reduced the chances of competing bids being made, according to investment research firm Morningstar.

Johns Lyng shareholders are expected to vote on the private equity investor’s $4 cash-per-stock bid in October.

The offer represents a 77% premium on the insurer-focused building services company’s closing share price on May 15, the day before it received the non-binding and indicative deal.

“We thought Johns Lyng shares were materially undervalued, and clearly the bidder agrees, offering a massive premium … This makes it unlikely for an interloper, in our opinion,” Morningstar says.

“We think this deal is fair and likely to go through.” 

Johns Lyng’s independent board committee has recommended shareholders accept the deal, which values the listed company’s equity at about $1.1 billion and implies an enterprise value of $1.3 billion. 

Pacific Equity made the offer a few months after Johns Lyng announced a decline in half-year earnings and flagged cost-cutting measures.

Morningstar says Johns Lyng’s shares have been low since February. “The company was behind on some projects but was showing signs of a recovery.

“Additionally, fewer natural disasters occurred. Both issues are transitory, in our view.”