Public perseverance

Since the beginning of this year, there have been some notable take-privates in the Nordic region. EQT was able to get final acceptance in March from the shareholders of Securitas Direct for its EUR1.1bn bid after the offer was launched in November last year (though an American hedge fund prevented the buyout house from total success when it stepped in to fudge the 90% acceptance rate). Separately, Altor took AGR Group from Oslo Bors earlier this year after initially pursuing a PIPE and gradually building up to a full take-private - the second time AGR has been in Altor's hands.

Bid premiums on Nordic exchanges have averaged 40% this year, based on the closing price 10 days before a launch of a bid, compared to the 32% median value that has been the norm for the past decade, according to Handelsbanken's M&A practice in Stockholm. But despite this increase, a string of recent take-privates have been delayed or abandoned, the most recent example being Nordic Capital's failed attempt to take TietoEnator private. Meanwhile, a SEK 1.5bn delisting of marketing and PR company Cision, led by Triton, has just failed. Triton faced a complex process as the Fourth Swedish AP fund, one of the target's largest owners, refused the bid that represented a 66% premium on the closing price when the offer was made, claiming that it was inadequate. Cision's shares had plunged by more than 50% since last year, meaning a 66% premium did not warrant bringing out the champagne.

"There is appetite for take-privates in the market, but these processes are more of an art than a science," says Handelsbanken's head of M&A Per-Olov Bergstrom in Stockholm. He explains that all delistings have to be evaluated on a case-by-case basis, and that no two companies are identical, meaning GPs have to go down complex routes to secure ownership over companies.

A major reason for any P2P failure is resistance from the target itself, which is often a result of board members aiming to maximise shareholders value - a fair aim. With the recent surge in premiums, it seems they have done a good job in squeezing the juice out of the lemon lately.

Buyout firms use bid premiums as a marketing tool to convince shareholders that buyout houses' bids offer a reasonable reward, but in the troubled public markets a 60% premium today is not the same as a 60% premium a year ago, making it easier for shareholders to deem a tender insufficient. Shareholder value has fallen sharply as the stock exchanges have plunged in today's environment, and the "true" value of a company is not necessarily reflected in its share price.

However, as Bergstrom points out: "It also depends on the type of investor that is involved in a public cash offer. For a speculative shareholder, a cash offer that can be used to diversify a portfolio could be very appealing."

Private equity is also fighting with corporates to win deals, with the former often touting a competitive advantage in the way of synergies, which can sweeten a deal for a target when a seemingly more long-term partner is coming on board. Buyout houses have more difficulties in explaining a future buy-and-build strategy to shareholders, especially if there are many of them.

A speculative game

Hedge funds are also contributing to increase bid premiums. With the requisite 90% necessary to execute a take-private, event-driven hedge funds have been opportunistic: they acquire stakes in target companies to block acceptance and to squeeze the prices up before selling again. "In Europe, nine out of ten cases have seen prices squeezed upwards where hedge funds have entered take-private processes," says Bergstrom. However, they don't always win: In 2004, the hedge fund that was speculating on Nordic Capital's take private of Finnveden, a Stockholm-based automotive parts business, sold shares in the company to Nordic Capital with a loss since other shareholders felt that Nordic Capital's offer was in the company's best interest.

Bergstrom also says that the more complex the ownership structure, that is, the more shareholders there are, the more stakeholders need to be persuaded and the more intricate the procedure becomes. Speculative hedge funds can be welcomed by shareholders who are looking to increase their value, thus getting in the way of private equity buyers. "It seems like more and more hedge funds have to be added to the equation in these processes going forward as these funds are targeting more take-private situations," says Bergstrom.

Despite current negativity, it is important to remember that the largest deal to date in the Nordics was the EUR10.2bn take-private of TDC in 2006. Another notable delisting was EQT and GS Capital Partners' EUR3.84bn take-private of support services group ISS in June 2005. So the take-private trend is not new, nor is it set for imminent doom owing to some hedge funds. GPs must be ready to meet resistance from shareholders but the tables are certainly set to make some prosperous deals.

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