Early in summer last year, managers at sports marketing agency Chime were made an offer they couldn’t refuse. The London-listed outfit, which counts Olympic gold medallist Lord Coe among its team, received a secret £374m takeover approach from American private equity firm Providence.
Chime’s biggest shareholder, WPP, was drafted into the talks, and in weeks a deal was in place that would take it off the stock exchange. Former Olympic champion Coe pocketed £1.7m from the deal.
The sale of Chime was a rarity, however — private takeovers of public companies rarely get over the finish line.
Private equity firms — which buy and sell companies on behalf of investors — have had little joy in their attempts to snaffle the stock market’s laggards in recent years.
They have, at least, no shortage of firepower. Together, according to the researcher Preqin, private equity firms in Europe hold $143bn (£98bn) in cash.
Normally they would use it to go after private companies — ones not listed on the public markets. But the number of big private firms available to buy has shrunk since a wave of companies such as Worldpay and Auto Trader went public last year.
City deal-makers think public companies will now become targets.
So-called “take-private” deals can generate huge returns. The last big wave of public-to-private deals came before the financial crisis, with KKR’s £11bn deal for high-street chemist Alliance Boots in 2007 the largest in this country. KKR’s gamble on Boots paid off when it agreed a $26bn merger with American giant Walgreens in 2014.
Volatile stock markets and falling share prices have given dealmakers hope of more take-privates.
Some were agreed last year. The American property investor Lone Star swooped on Wembley Arena owner Quintain in a £745m deal in September after a battle with activist shareholder Elliott.
The Innovation Group, an outsourcing company once backed by Quindell founder Rob Terry, was taken off the market by Carlyle for about £500m in November.
Despite the odd success, public deals are difficult to pull off, City sources say.
A top deal lawyer said he was currently “flooded with requests” about public company takeovers. “Firms want to do these deals, but it is still incredibly hard to get the transactions done. Most of them don’t come to fruition.”
A banker on the Chime deal said the UK takeover code stacked the odds against public-to-private transactions. “The code has made it tricky. You can’t get a break fee if a deal collapses, and someone might come and trump you.”
Providence’s takeover of Chime was helped by the support of WPP, which swayed other investors, the banker said. “[Chime] was collaborative, and WPP was interested. It was never going to be hostile. The days of private equity coming in with plans to sack all the management are long gone.”
A private equity boss said some of his deals had suffered because of the attentions of the Takeover Panel, the City watchdog that polices takeovers. “A company’s management can call the panel and say, ‘I think they are preparing an approach.’ It then calls us, and asks if we’re looking. We then have a few days to give a clear answer, and if you can’t, you are locked out for six months,” the dealmaker said.
Secretive buyout firms often weigh up takeovers of public companies, but many ideas fail to make progress.
Two years ago, CVC and Carlyle started early discussions about a bid for ailing supermarket chain Wm Morrison, but the potential offer was scuppered after news leaked to the media. The two firms had to “down tools”, a person close to the bid said. The supermarket is still on private equity’s wish list, insiders say.
Other take-private candidates include the bookie William Hill, bankers suggest. Large buyout firms such as Advent International circled J Sainsbury shortly before its bid for Home Retail Group (HRG), according to senior City sources.
HRG had itself been a takeover candidate for private equity, with firms such as Golden Gate Capital “running the numbers” last year. HRG’s former executives were even asked to look into the deal.
Other takeovers are derailed by rivals. Apollo, the New York investment giant, made a £500m offer for insurance software business Xchanging in October, before it was outbid by CSC and Ebix, two American tech companies.
With fierce competition and tricky takeover rules to deal with, the chances of a flood of take-privates are slim, according to Eamon Brabazon, a banker at Bank of America Merrill Lynch. “If a deal leaks inadvertently it has to be clarified pretty quickly,” he said. “Then you have a finite amount of time to put in an offer. Private equity likes doing things outside the glare of the media.”
