Window of Opportunity Open for Smaller UK Take-Privates

The UK could see a wave of delistings in the sub-£100m value bracket, suggests a piece of research which has identified a growing trend of ‘stranded Plcs’.

That some sub-£100m-size companies would be better off private, rather than listed, is not a new idea.

What the research, commissioned by BDO Stoy Hayward, does do is indicate that private equity-backed take-privates could have a higher chance of success at the current time than in the past as fund managers are increasingly looking to realise their positions.

Multiple shareholders and unwilling sellers mean take-privates are traditionally regarded as more risky, complex and expensive transactions than acquisitions of companies from private vendors.

However, this could be changing. The research found that 48% of fund managers invested in listed companies valued at between £15m and £250m will consider encouraging their investee companies to seek public-to-private funding in the next year.

Moreover, 52% of fund managers said they would welcome a public-to-private approach.

Before the onset of the credit crunch in mid-2007, many take-private transactions in the UK were characterised by fund manager scepticism of private equity buyers.

Some scepticism remains – selling to trade is considered the most likely exit route to maximise shareholder value in the next 1-2 years.

But the current willingness, indeed eagerness, of some fund managers to realise their positions in smaller companies must be seen as a real window of opportunity for private equity firms looking for targets in today’s market.

“This is a combination of circumstances giving rise to a unique window of opportunity,” said Michael Cobb, corporate finance partner, BDO, at a presentation of the results on Wednesday morning.

Although conceding that debt, or rather the lack of it available, was “the elephant in the room,” Cobb believes that certain listed-companies are ripe for the picking and reminded buyout firms in attendance that the window of opportunity would not be open for ever.

Source: Thomson Merger News