Huge rise in private equity backed takeovers on AIM

Publications that covered this article include The Independent, 9 April 2012.

  • 57% of M&A activity on AIM due to ‘take private’ transactions
  • Number of IPOs falls, but more money now being raised

A sudden surge in M&A activity on AIM is being driven by private equity backed deals to take companies private, our research reveals.

21 companies left AIM after being taken over in the last quarter (Q1 2012) compared to nine in Q4 2011. This is the highest number of AIM M&A deals in two years.

Of these, more than half (57%) were ‘take private’ deals, completed by private equity funds or majority shareholders, compared to the average of just 27% over the previous two years.

Our findings explain that two thirds of the take private deals are being launched by private equity funds. (See examples below).

This kind of private equity frenzy often precedes a rally in the market as private equity houses and businesses owners see a simple profit to be made by taking AIM companies off the hands of other, seemingly disinterested, shareholders.

Laurence Sacker, partner at our London office, comments: “This huge interest in AIM from private equity companies shows just how undervalued they think the market is at present.”

“After a relatively quiet few months, depressed share prices and relatively low company valuations have piqued the interest of opportunistic buyers.”

“There has been concern for some time now that AIM investors are not valuing these companies highly enough. It would appear that private equity companies agree.”

“Barring any major economic shocks we should see this trend continue. Q1 is generally a quieter quarter as companies recover from the Christmas lull. However, bidders with shorter term investment horizons might start to drop off as prices get driven up as more buyers come into the market.”

Examples of private equity backed ‘take private’ deals in Q1 2012

  • Parseq plc acquired by CNH Bidco Ltd (an MBO vehicle backed by private equity funds of HarbourVest Partners)
  • Clarity Commerce acquired by Enigmatic Investments Limited (part of BeCap Fund, which is owned by Jon Moulton’s Better Capital)
  • GTL Resources acquired by Sinav Limited (a bid vehicle established by Harwood Capital LLP)
  • Jacques Vert acquired by Minerva Bidco Ltd (owned by Sun Capital)

More companies leaving AIM, but fundraisings through IPOs on the rise

Overall, 34 companies left AIM during Q1 2012, up from 24 in the previous quarter, while the number of companies joining the market fell from 16 in Q4 2011 to just 13 in Q1 2012. (See full results below)

Laurence continues: “Losing companies because they are being taken over by another company is not a bad thing for AIM. It shows what confidence companies have in AIM’s ability to take them to the next stage in their development.  Many companies listing on the exchange may have this outcome in mind when they launch their IPO.”

Our research found that new companies listing on AIM are raising larger funds than they were this time last year.

Despite a fall in new listings in the last quarter, the total money raised by new issues nearly doubled, up by 90% on Q4 2011. The amount raised through IPOs rose to approximately £136 million in Q1 2012, up from £72million raised in Q4 2011.

Laurence adds: “Despite these positive signs, AIM is not out of the woods just yet. A handful of companies have still cited low liquidity in the market as a reason for leaving, as well as those scared away by fear of a prolonged Eurozone crisis.”

Number of companies delisting from AIM

Q3 2011

Q4 2011

Q1 2012

Reasons for de-listings

Number

% of total

Number

% of total

Number

% of total

AIM too expensive / too much of a burden

1

5%

2

8%

3

9%

Change of listing to other exchange

2

9%

4

17%

1

3%

Failure of strategy

4

18%

1

4%

4

12%

Financial stress & insolvency

4

18%

7

29%

5

15%

M&A

9

41%

9

38%

21

62%

No NOMAD

1

5%

1

4%

0

0%

Other

1

5%

0

0%

0

0%

Total

22

24

34