Advisor predicts increase in SME take-privates

Research suggests listed SMEs currently offer a ‘compelling’ opportunity for private equity-backed acquisitions, due to a combination of continually low valuations and increasingly available debt.

There are “compelling” take-private opportunities in the SME space for private equity firms, according to research by DC Advisory Partners.

The London-headquartered corporate finance advisor found that small- to mid-cap stocks in the FTSE All-share index trade at a 20 percent discount to their larger counterparts – an average of 6.2x EBITDA compared with a 7.3x, respectively.

[It will become] increasingly difficult for both the board and for shareholders to turn down someone who comes along and offers you a 40 to 50 percent premium.

Guy Ballantine

In an interview with PEO, Guy Ballantine, a director at DC Advisory Partners, said that “from a pure valuations point of view” this situation represents a very compelling opportunity for private equity firms with an appetite for take-private deals.

Continually low stock prices will result in shareholders accepting lower bids than they previously would have, Ballantine added, and it will become “increasingly difficult for both the board and for shareholders to turn down someone who comes along and offers you a 40 to 50 percent premium”.

A rush of public-to-private deals was touted as a possibility in 2009, when share prices were at their lowest, but the slew of deals did not materialise. “On the face of it, it would have been the best possible time to do take-private deals” said Ballantine, “but as we all know, there was little activity in the end”.

This time, Ballantine said that the combined dynamics of time, more undeployed capital, and greater debt financing available all suggest “it is likely that more deals will happen”.

A recent example of a UK take-private deal was the £414 million acquisition and de-listing by Bridgepoint of Care UK, the independent outsourced care services provider.

DC Advisory Partners is a corporate finance house offering independent advice in mergers and acquisitions, debt raisings, restructuring and public offerings. It is an affiliate of Japanese investment bank Daiwa Capital Markets.