Industry sets sights on P2Ps

Yesterday's £423m take-private of health and social care provider Care UK by Bridgepoint marks the fourth such transaction in the UK and Ireland this year, proving that in fact, more companies are exiting the public market than they are entering - contrary to previous expectations.

Although there was hype surrounding take-private opportunities last year, as many listed companies looked to be significantly undervalued, such transactions never really materialised.

Most of this comes down to the fact that share prices of smaller companies were relatively flat, opportunities to raise capital were limited and there was generally little liquidity to speak of in the market. Additionally, there was also some reluctance on the part of institutional investors to sell to private equity funds, as they regarded the depressed valuations to be part of a wider slump in the market and less stock specific.

This situation has reversed. Following the public market rally at the end of last year institutional investors are now more open to selling at more acceptable valuations. The vendor-buyer pricing gap has narrowed substantially from this time last year, and investors are desperate for returns following an 18 months hiatus.

That said, seller unwillingness was not the only hurdle to completing take-privates. Says one banker: "While showing some signs of life, the leveraged loan market is for the most part still closed, making it unlikely take-privates will become a primary source of buyout deals in 2010. Even with the high-yield bond markets open, take-privates will be difficult to complete without the use of bridge loans, which remain largely unavailable now."

Speaking to unquote" last year, Peter Hemington of BDO Stoy Hayward emphasized that finding a bank to sponsor a P2P is a rather difficult feat. "Banks get a bit freaked out about take privates because they require a bank to commit unconditionally relatively early – that goes against the grain of how they think."

Indeed, it is possible that the last four P2P announcements were just a blip and not indicative of things to come. The Bridgepoint deal was actually rather difficult to complete as the private equity firm's unsolicited bid of 377 pence was rejected outright in October, suggesting that the transaction has been a drawn-out affair and might still not complete –the deal is structured as a scheme of arrangement, which requires the approval of a majority of shareholders.

The Care UK deal follows Advent International, Bain Capital and Berkshire Partners' $1.1bn de-listing of Dublin-based provider of e-learning and performance support services SkillSoft, as well as Maven's £5.5m take-private of LitComp and Duke Street Capital's €104m buyout of listed Payzone Group.

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• Topics
• UK / Ireland
• Investments
• BDO Stoy Hayward
• Advent International
• Bridgepoint