Gatemore eyes larger stakes in listed SMEs as path to take-privates

The investor, like its peers, has historically built 3-5% stakes and then effected change by trying to corral other shareholders. But a cheap stock market has presented a chance to build bigger positions that can exert more influence.

“About a year ago we made a distinct decision to move away from smaller positions,” said Meidar. “15-20% will become more common, even all the way through to take private. At a high single digit, we start to feel like we can have meaningful influence and 15% is a very strong voice at the table.”

That sway can push for board and management changes, said Meidar, alongside corporate activity like a fresh capital allocation policy, the sale of a division or the sale of the business.

A core example is British courier and logistics company DX (Group), where Gatemore has a 20% stake having first entered the capital in 2017. Its influence helped to oust the company’s chairman Ron Series, with the activist pointing to governance failure and a declining stock price.

The investor has also helped push a turnaround on the financials, Meidar said. DX's annual reports show that the company reported GBP 7.2m EBITDA in 2017, up to GBP 50.3m in 2022

Looking to future investments, Gatemore will likely avoid sectors that have uncontrollable commodity elements like materials and utilities, and is broadly focused on consumer and industrial names, said Meidar.

The investor is also moving from an open fund strategy, to actively raising a close-ended fund with a finite life that gives some flexibility around the holding period. That opens more opportunities in sectors like consumer with good brands that will do well in the long-term, he said.

Pushing private
With financial sponsors ever looking for opportunities to deploy, activist situations are increasingly seen in the market as places for private equity takeovers, especially once the ongoing difficulties in underwriting buyouts start to resolve, Meidar said.

Sponsors have acquired activist assets, much like Triton’s GBP 1.2bn takeover of Clinigen after Elliot Management was pushing for a break up of the group. Other companies could become targets amidst activism pressure, this news service’s Flash column has argued, such as Swiss holiday booking platform Lastminute.com, which has been urged by investor Dark Horse to put itself up for sale, according to media reports this autumn.

“In this environment, that’s going to be the main exit route as there are no buyers for large blocks of shares,” said Meidar.

With the higher influence of a large stake, activists like Gatemore can get the company ready, get potential buyers to look at the name and possibly make an approach, by which time the company is normally ready to appoint advisors, Meidar said.

Funds do have dry powder ready to deploy into public markets. Advent International has said take-privates are a key strategy of its latest USD 25bn global fund as reported, while others have already been active in the space, like Astorg in its de-listing of Euromoney. HIG is also looking for carve-out opportunities for orphaned assets in listed conglomerates, as reported by this news service.

“There’s a double upside,” said Meidar. “We’ve enacted some kind of turnaround so that the share price rerates and then pushing the company into play gets a private equity premium on top.”

Mayday for UK
Gatemore acts in what it describes as a particularly stagnant UK small-cap equities market, where some companies have lost 60% - 90% of peak market value.

The FTSE SmallCap Index is down 13% over the past 12 months as of today (10 January), with Alvarez & Marsal identifying 144 companies at risk of activist attacks in the next 18 months according to its recent A&M Activist Alert.

Meidar said the market is illiquid partly due to the dominance of pension funds and insurers that pass the legacy of dividends over growth down to management teams, and then Brexit that kicked off a new wave of value differentials.

“All of that had led to an under-allocation into the market,” he added.

This, and the cheap pound, is creating opportunities for investors like Gatemore to start building big blocks in places that are fundamentally good but underperforming for a variety of reasons. “I don’t know if we could have a better buyer environment if you afford yourself the patience to let it play out over a few years,” said Meidar.

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

• Topics
• GPs
• Investments
• Buyouts
• PIPEs
• Funds
• UK / Ireland
• In Profile
• United Kingdom
• Take Private
• LSE