Unlisted shares: buyout groups offer public investors a toehold

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The status of minority shareholders in private businesses was once seen as so miserable that public market investors would do anything to avoid it. They had no say in the running of the company, little visibility on where it might be going and slim chance of ever receiving a decent return.

Private equity has been challenging that stereotype — along with its own reputation for ruthless exploitation of public market pricing failures. Buyout groups in Europe are increasingly willing to allow minorities to stay in companies they take private. Nor — given a typical 3-5 year exit horizon — will they automatically be turned down.

Numbers remain small. Just seven out 70 European public-to-private deals tracked by Preqin since the start of 2020 offered private shares in the unlisted business. Permira’s £700mn ($882mn) acquisition of Ergomed last month was one example.

Typically, acquirers only deviate from the template of a full cash offer if they want to bring a favoured shareholder along. Takeover rules usually stipulate that all shareholders must be offered the same deal, hence a wider option for private shares.

Permira has an irrevocable agreement from Miroslav Reljanović, who holds an 18 per cent stake that will roll into the private group.

Toscafund’s £1.1bn deal for broadband operator TalkTalk in 2020 was another notable instance of rollover shares. The purchaser wanted to keep founding shareholder Sir Charles Dunstone in the mix. TDR offered a rollover option in its deal to buy debt manager Arrow Global in 2021 to accommodate a large holder.

Few investors except for strategic ones prefer shares to cash. Many fund managers are restricted from doing so by their mandates, though attitudes may be changing.

EQT’s offer to buy back a stake in German software group Suse for half the 2021 listing price includes the option to take private shares.

That will not endear the Swedish private equity group to all out-of-pocket fund managers. But some may hope to make back on the buyout swings what they lost on the public market roundabout.

The Lex team is interested in hearing more from readers. Please tell us whether it is ever worth holding a small stake in a buyout company in the comments section below.