Opportunity Knocks
A trend has emerged in recent years for private equity buyers to snap up small Irish public companies. Conor Mehigan of Renatus wonders who might be next
In 2018 Euronext completed the purchase of the Irish Stock Exchange from the country’s main stockbrokers. IPO activity on Euronext Dublin has been relatively quiet in recent years, with a select number of companies such as Health Beacon (2021), Corre Energy (2021) and Uniphar (2019) taking up new listings.
While there are many advantages to going public — such as access to new financing, liquidity and enhanced visibility — they come at a cost:
■ Short-term focus. Given the frequency of reporting, investors sometimes take short-term views on performance which may lead to management focusing on shortterm share price moments instead of longer-term growth initiatives.
■ Cost. The cost of completing an
IPO and maintaining a listing is expensive due to ongoing regulation and reporting rules.
■ Control. If a company is public, it cannot restrict who buys shares. Investors such as activists may have alternative plans for the business and cause disruption on the public stage. ■ Takeover. If there is a weakness in the share price, it may open the company to a hostile takeover by a competitor.
■ Volatility. We are currently in the midst of volatile markets due to macro events including Covid 19 and the war in Ukraine which have resulted in a significant sell-off of stocks.
Historically, ambitious Irish companies such as Ryanair, Kerry Group, DCC et al have had limited options when raising capital. However, markets have evolved in recent years and many more options are now available, in particular private equity, which allows ambitious founders and management teams to grow outside of the spotlight of a plc existence.
Some listed companies are trading below the fair value they would achieve in an M&A transaction. This has created the opportunity for private equity firms to deploy unspent capital through the takeover of a public company. The takeover of a public limited company involves delisting its shares and implementing a business plan in order to improve profitability. Over the last 20 years, private equity firms have offered the highest premiums for listed companies, paying almost 70% above the prior share price in some cases. Some recent examples of Irish take-private deals include:
HIBERNIA REIT
The Dublin-based property owner and developer was taken over by Canadianbased Brookfield Asset Management in June 2022. The company was listed on Euronext Dublin and the London Stock Exchange since 2013, and shares in the Irish group had traded at a discount to net tangible assets for six years, making it an attractive takeover target.
Hibernia was the third Irish REIT to be taken private in recent years, following the privatisation of Green REIT and Yew Grove under similar circumstances, leaving Ires REIT as the final Irish REIT to remain as a publicly listed company. Brookfield Asset Management offered investors €1.60 per share plus a 3.4c dividend, valuing the company at c. €1.1bn, a 36% premium to the share price at the time.
UNITED DRUG GROUP
The pharmaceutical distribution company was taken over by US private equity company Clayton, Dubilier & Rice in August 2021. United Drug Group (UDG) was first listed in 1989 as a cooperative by a group of pharmacists to secure a reliable supply of medicines.
The company expanded internationally and completed 30 acquisitions between 2000 and 2016, when Liam FitzGerald led the business as chief executive. During his time, the company delisted from Euronext Dublin and was exclusively traded on the London Stock Exchange from 2012-2021.
Clayton, Dubilier & Rice made an initial offer to acquire the business at £10.23 per share, a 21.5% premium on the prevailing share price. When UDG shareholders asked for more, the offer was raised by 5.6% to £10.80 per share, valuing the business at c.€3.2bn.
UDG primarily focused on two businesses at the time of the takeover: Ashfield, an outsourced service provider for sales reps and healthcare communications for drug makers, and Sharp Packaging. Following the acquisition, Ashfield was integrated with another CD&R company, while Sharp Packaging continues to be operate independently. Accounts filed by UDG Healthcare at the end of August show profit increasing by 340%, mostly due to an uplift in the company’s financial investments in subsidiary undertakings related to CD&R’s takeover of the business.
APPLEGREEN
The petrol forecourt retailer with operations in Ireland, the UK and the US was delisted in March 2021 in a take-private transaction financed by Blackstone. Blackstone offered €5.75 per share, representing a 48.2% premium on the Applegreen share price on December 9 2020, when it emerged that a takeover was in motion. The offer price was also a 13.9% premium on the previous day’s close and valued the business at c.€718m.
Applegreen was first listed in June 2015 when stock was issued at €3.80 per share. Shares in the company reached a high of €6.62 in September 2018 and fell to a low of €2.05 in March of 2020. The undervalued share price and Applegreen’s plans to transition to offering electric vehicle charging infrastructure led to Blackstone making the offer in the belief it will add further value to the business.
Forecourt retailer Applegreen listed in June 2015 and delisted in March 2021. Pictured at the IPO were COO Joe Barrett, CFO Paul Lynch, and CEO Bob Etchingham with Orla O’Gorman of the Irish Stock Exchange
CPL RESOURCES
Unlike the aforementioned take-private deals, CPL Resources, the Dublinbased recruitment company, was not acquired by private equity. It was taken private by Outsourcing Inc., a Japanese multinational human-resource solutions business. Anne Heraty cofounded CPL in 1989 and listed the firm on the stock market in 1999. CPL expanded rapidly and completed 16 acquisitions across Ireland, the UK and Europe between 2000 and 2019. The sale of the business was part of a strategy to further expand CPL, as Outsourcing Inc. had a wider, better resourced recruitment group with 134 global locations at the time.
Outsourcing offered €11.25 per share in an all-cash deal in November 2020. The deal was executed on January 21 2021, valuing the business at c.€318m. The offer represented a 50.6% premium on CPL’s share price over the previous 30 days and a 36.4% premium on the stock price the day prior to the announcement.
The stock market will likely remain turbulent for the foreseeable future, due to fears of a recession and the energy crisis. Companies such as Dalata Hotel Group, Origin Enterprises and Grafton Group have experienced significant share price declines due to the current economic environment. The quality, strength and long-term performance of each business lines them up as possible targets for future take-private deals.
Conor Mehigan is Associate Director at Renatus Capital Partners