Innovative approach helps NRG delisting | 29 January 09

LAW firm Ward Hadaway helped to save the North-East’s largest recruitment company valuable time and money with an innovative approach to taking the company off the stock market.

NRG (Northern Recruitment Group) turned to the experienced plc team at Newcastle-based Ward Hadaway when it wanted to delist from the London Stock Exchange after 11 years.

Traditionally a delisting is either effected by the shareholders agreeing for the company to come off the market and continuing to hold their shares in a private company or via a public to private (or ‘P2P’) transaction.

A P2P involves a new company launching a formal offer to buy all the shares of the listed company and then, on the successful completion of that offer, the company delists.

It requires committed funding, usually from banks or venture capital firms, to finance the offer at an early stage of the transaction and, this coupled with the variety of professional advisers and the extent of the application of the Takeover Code, means that deal costs for traditional P2Ps can run into millions.

For small listed companies, the level of adviser fees and the cost and complexity of the funding arrangements have resulted in a traditional P2P not being a particularly attractive option.

In the case of NRG’s move off the stock market, Ward Hadaway and Charles Stanley Securities structured the delisting transaction in an innovative way to cut down on costs and speed up the process.

Using a structure dubbed ‘P2P Lite’, the process saw the company buy shares back from shareholders at a premium to the market and then to delist.

The share buyback route allowed shareholders who didn’t want to hold shares in a private company to sell their shares at a premium to the market value.

The P2P Lite method can be significantly cheaper (particularly in terms of advisers’ costs) and quicker than a traditional P2P.

NRG announced its plans to buy back shares at a cost of £2.72m at the end of October 2008 and, following shareholder approval for the proposal, the company was delisted from the London Stock Exchange on December 23.

Emma Sewell, consultant in the plc team at Ward Hadaway, said: “We were delighted to be able to help NRG achieve its aim of delisting.

“The structure allowed the company to reduce its costs and allowed shareholders to either sell their shares or continue their investment in Northern Recruitment Group.

“This innovative type of transaction is not for everyone, but it fitted NRG’s company profile and shareholder structure very well. We naturally wish the company well in its new form.”

Wayham Moran, Finance Director of NRG, said: “It’s not a good time for small cap companies listed on the Stock Exchange. Many remain there because they can’t afford the fees to delist.

“NRG has a strong balance sheet but the traditional P2P route would have swallowed up a significant slice of shareholder funds in advisers’ fees.

"Using P2P Lite enabled us to offer a decent premium to selling shareholders but left us as a private company with strong cash balances, a vital business advantage in today’s financial climate.

“The Ward Hadaway team did a great job, we were really impressed by their professionalism and commitment.”

The current economic situation may see more companies deciding to delist and this new P2P Lite structure means that companies may want to consider this as an alternative structure to a traditional P2P.

Emma said: “While many public companies may be better off riding out the current storm, both public to private transactions and P2P Lites can allow companies to reduce their costs and provide shareholders with a method of cashing in their investment.

“However, a public to private is not for everyone and will depend on the type of company, its management team, its asset and cash flow base, the attitude of its shareholders and its plans for the future.

“As a result it is crucial to use advisers who have extensive experience of this type of deal and its structural nuances, especially as it will be one of the most significant financial decisions in a company’s history.”

* Find out more about Ward Hadaway's public companies and markets expertise or discover how our wide range of corporate finance services can help your business.