Hard Times: Great Expectations? | 11 August 08

FALLS in share prices coupled with a perceived squeeze on the availability of shareholder-backed funding are making public companies think about going private, according to a leading North law firm.

Ward Hadaway says that the current climate is encouraging some plcs to consider private equity-based management buy-outs rather than staying as listed companies.

Emma Sewell, partner in the public companies and markets team at Ward Hadaway, believes this kind of deal – known as a ‘take private’ or ‘public to private’ transaction – may become increasingly common. She has previously been involved with the take privates of Concentric plc, Wyko plc, Epwin Group plc and Safestore plc.

Emma said: “This area is definitely picking up and is becoming a hot topic again.

“It was popular in the late 1990s, particularly amongst smaller quoted companies who felt unloved by the stock market.

“Although most public companies would probably be better off staying on the stock exchange, public to privates can provide some companies with a new source of finance and provide shareholders with a method of cashing in their investment.”

However, companies are being warned that successful public to private transactions need expert handling and are not a magic bullet for unloved plcs.

Emma Sewell explained: “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.

“They are also pretty unique in their composition as they have to be run in accordance with the Takeover Code yet, typically, have to fit within a private equity and debt funding structure.

“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 of a manager’s career.”