Nordic take-privates: Why speed is of the essence

After nearly a year of holding a controlling stake in Swedish enterprise resource planning software business Industrial & Financial Services (IFS), EQT managed to break the 90% shareholding threshold that allowed it to forcibly liquidate any minority shareholder positions and de-list the company from the Stockholm stock exchange.

EQT's take-private follows a process that began in November 2015 and saw US-based activist investor Paul Singer take up a corner position in Nasdaq OMX Stockholm-listed IFS through his Elliott Capital Advisors vehicle.

EQT first made its move for IFS last year, acquiring 63% of the share capital and 68% of voting rights in the company through its 2015-vintage €6.75bn EQT VII fund. At the offered price of SEK 362.50 per share, the total value of the offer was just in excess of SEK 9bn.

Assuming Elliott Capital Advisors acquired its IFS shares at a similar price to EQT's initial bid, the activist investor stands to make around SEK 100m for an eight-month hold

By 26 January, the GP had increased its control to 86.9% of voting rights and 83.2% of share capital. Three days later, activist fund Elliott Capital Advisors announced the acquisition of 2.8 million IFS shares, equivalent to an 11.3% stake and 8.9% share of voting rights, effectively blocking EQT from completing a compulsory squeeze-out of the remaining shares at the offered price – a move allowed by the exchange if a single investor brings its shareholding above a threshold of 90%.

On 12 September, the take-private tug of war came to an end when EQT bought Elliott's shareholding at SEK 396.73 per share, or around SEK 1.1bn for the 11.3% stake. Assuming Elliott acquired its shares at a similar price to EQT's initial bid, the activist investor stands to make around SEK 100m for an eight-month hold.

Easy money
With IFS, the failure of EQT to secure enough shares to block any potential interlopers and squeeze out minority shareholders ended up costing the GP SEK 100m. Though the price increase will have a negligible impact on a €6.75bn buyout fund, the additional time and resources needed to deal with Elliott will have added a layer of frustration EQT would have likely preferred to have been without – not to mention a potentially negative impact on IRR.

In a situation such as EQT's, the sponsor is more or less forced to pay up. The alternatives are to continue as a public company, or abandon its pursuit, which can be difficult if the GP ends up having to unwind a substantial majority position on a public market. A GP may even have to drag along a group of unwanted minority investors: Danish GP Polaris's take-private attempt of Danish ferry operator Mols-Linien saw investor Henrik Lind build a shareholding alongside smaller investors but failed to block the de-listing and had those shares locked into a private structure.

Activist investors generally take shorter view than private equity, but being dragged into a take-private could ultimately end up a good deal if the returns typically targeted by private equity are achieved.

The relative illiquidity of parts of the Nordic public markets and occasional inefficiency as a means of raising funds means the bourses will continue to create take-private opportunities for private equity.

A private equity fund with an established record going into a public company can be a good indicator of a strong value proposition, but add a GP with deep pockets like EQT and it quickly becomes a potentially golden opportunity for a third party looking to make a quick buck with relatively limited risk.

Ultimately, GPs will have to improve the speed at which they acquire shareholdings to breach the squeeze-out threshold, or they will find themselves victims of activists who have the savvy to deal with minority shareholders and build a corner position in search of a quick buck.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Send to  

• Topics
• Nordics
• GPs
• Sweden
• Top story
• EQT
• Polaris Private Equity
• Take Private