Private Property

Unlike the rest of European private equity markets which are slowly picking up pace (see pages 18-19), according to the unquote" Q3 Barometer produced in association with Candover, Nordic activity has been simmering at the same low levels as in the summer months. The start of Q4, however, brought a few notable deals, specifically three bids for take-privates (P2Ps). Norwegian private equity house HitecVision is behind two of the offers: launching a cash bid of NOK 483m for Bjorge ASA, a technology supplier to the oil and gas industry, alongside Converto and Aker Capital Fund; and a NOK 347m offer for oil service company Grenland Group together with target founder and CEO (see pages 29 & 30). The third bid sees Nordic Capital rescue ailing offshore service company Master Marine ASA, with a EUR270m voluntary cash offer (see page 31).

The three deals bring the tally of take-private deals for 2009 to five so hardly earth-shattering figures. But these do not tell the whole truth: "A lot of work has been done on potential take-private targets," says Are Herrem, partner at Norwegian law firm Selmer, who advised targets Master Marine and Grenland Group. "The lion's share never made it to final offer stage," he adds.

As with traditional buyouts, the main challenge remains the gap in price expectations between buyer and vendor, particularly as volatile markets make earning visibility poor. The myriad shareholders that own most public companies make agreeing a price tough - since depressed prices are attractive to buyers, but many shareholders prefer to wait for an upturn to sell. HitecVision for example, had been circling Grenland for some time before the parties met on a valuation.

A question of price

So what price does one pay to secure a deal? "A fair price," asserts Pal Reed, senior partner at HitecVision. He offered a premium of 33% on the average volume weighted share price during the last three months. In terms of value, however, 2008/09 figures are miles off the figures we saw in 2006 with high profile deals such as Capio, a EUR1.7bn acquisition backed by Apax and Nordic Capital; EQT and Investor's EUR4bn acquisition of Gambro; and the record-breaking EUR10bn take-private of TDC.

Yet, unlike a trader, the GP is not looking for undervalued businesses and arbitrage opportunities. "We will grow the value of Grenland through traditional private equity methods: international expansion, add-ons and operational improvements," Reed explains. He goes on to say that the incumbent ownership and capital structure was not able to support these developments, and the company would benefit from concentrated ownership, and crucially, cash-rich owners ready to make the necessary improvements.

Conspicuously, all three October targets are Oslo-listed, offshore, services-related companies. "We are expecting a tough economic climate to continue for these sectors in the years to come," Reed explains. "By taking them private, we ease capital restraints and can prepare them for the upturn." All three deals were completed without debt components, arguably allowing the companies more flexibility in their capital structuring later on.

Although this reasoning also applies to the Master Marine bid, this transaction was a very different deal, as it was essentially a rescue operation. Yet, unable to secure bank loans to finance the construction of two new vessels, Master Marine will now be able to complete its growth plans.

Complications

Other private equity bidders have not been greeted with such open arms. FSN Capital, for example, sought to de-list software virus operator Norman ASA in June this year, but has met resistance from a minority owner, which has sent a complaint to the board of the Oslo Stock Exchange. With hardly any liquidity in the stock, however, the arguments to remain quoted are waning. The example goes to show the added complications in these types of transactions. For example, the time aspect puts pressure on the due diligence, which in turns highlights the benefits of being a sector specialist: "Because all our investments are in the sector we have already have in-depth knowledge of the industry and an extensive work, which allows us to do some form of due diligence in advance of the formal process," Reed explains.

Being so involved in a sector with limited players also raises the stakes for HitecVision. "We have built up a reputation and it is a trust relationship we strive to live up to in every deal and negotiation process." A good reputation can go some way in helping secure pre-acceptances. For Grenland, Hitec has teamed up with the founder and CEO and large existing shareholders, and thus already guaranteed an acceptance rate of 70%.

This example, coupled with the sudden rush of three deals in the space of a month, could be a sign that both buyers and vendors believe markets are now stabilising. Over the past year, market volatility and a lack of visibility of earnings have made pricing and valuations as contentious an issue for listed companies as for unlisted assets. It remains to be seen if we will see another rush before year-end, but with share prices having increased nearly 40% since early 2009, buyout houses should put in their efforts now. As Herrem warns: "The window of opportunity might be closing."

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