Chris Hughes is a Bloomberg Gadfly columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

HarbourVest's 1 billion pound ($1.3 billion) bid for SVG Capital is about as hostile as opening shots get. The U.S. investment group has gone straight to SVG's shareholders with a take-it-or-leave-it offer, secured the support of the target's top investors and bought a near-10 percent stake in the market in a matter of hours. All that's missing is a lurid personal attack on SVG's managers. SVG is on the ropes but the listed private equity group is not defenseless, and has a duty to put up a fight.

It's not hard to see why SVG investors are egging HarbourVest on. SVG has been trading at a stubborn discount to its funds' net asset value. The gap was 15 percent based on Friday's close and the 666 pence NAV as of 30 April. HarbourVest's offer, worth 650 pence a share, is at a 2.4 percent discount and so seemingly offers a chance to get out almost at par.

For lead shareholder Coller International Partners, the offer would deliver a spectacular return. It took most of its 27 percent stake when SVG launched a rescue rights issue at one pound per share in 2009. Coller has given HarbourVest an irrevocable commitment to accept the offer. Other big beasts in U.K. asset management -- Aviva Investors, Legal & General Investment Management, Old Mutual -- have given non-binding letters of support. The fact they've gone public is a big embarrassment to SVG.

Coller's returns on SVG will be attributable mainly to the low price at which it made its investment. For other shareholders, the exit price from a deal may matter much more. And the fact is that 650 pence a share isn't compelling. Some 85 percent of SVG's assets are denominated in dollars or euros. The sterling value of these should have risen by about 10 percent following the pound's plunge on Brexit. All other things being equal the NAV would therefore be about 720 pence a share. Add a bit of investment performance and it could be higher still. If that's correct, the HarbourVest offer is more like a double-digit discount to NAV.

Full Value? Not Quite.
HarbourVest's offer for SVG is at a slight discount to the investment firm's pre-Brexit net asset value
Source: Bloomberg

SVG's board has limited options. Its best tactic would be to find a counter-bidder willing to pay more -- a long shot. HarbourVest's offer might then struggle, even with Coller's irrevocable support, to get to its minimum 50 percent plus one share acceptance condition. Alternatively, SVG could do what HarbourVest is planning to do and liquidate its holdings by itself. True, that value would be realized over time, whereas HarbourVest is offering a way out now. But at least SVG investors would get 100 percent of the upside of such a strategy. Alternatively, SVG could do a bit of both: roping in a bidder for part of the portfolio and liquidating the rest.

Clever HarbourVest is a winner either way. If it's outbid, it will then make a turn on its own SVG stake. For SVG, the game looks up for its existing strategy. But it can redeem itself by trying to find an exit above the current offer.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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