As we await the outcome of the growing battle for the mega buyout that could be
What is making the public to private space so interesting is not only the deal flow potentially generated and the multiples potentially paid but also the increasing investor maturity and shareholder activism that these deals are invoking.
This activism has taken a number of forms. In part, it has centred on the conflict of interest between executives who are actively running public businesses on behalf of shareholders while trying to buy the same business through an MBO; and banks that initially act as financial advisers to the target and then swap sides to become financial backers for the bidder.
In Australia, the chairman and senior executives of
But although these are all valid points, they are ultimately not deal breakers. It is easy to argue that procedures have long been in place to handle these situations, with independent committees set up to consider any bids and executives obligated to run the business in the best interests of the shareholders. And ultimately, if a bid fails the executives in question have to resign.
What is a deal breaker, of course is price and this is where activism, currently from hedge funds, appears to have firmly found its voice.
No matter what your stance on hedge funds is – some would argue that they are effectively coming to the rescue of public investors who feel private equity is out to short-change them. Others argue that hedge funds might destroy the potential for long-term value in return for a gamble on a short-term price gain. Either way they appear to have firmly entrenched themselves as agitators in private equity bids this year.
“Hedge funds have definitely woken up to the situation. There have been three or four bids in the last couple of months – it seems to be flavour of the month – but why now I don’t know”, said one commentator.
Hedge funds are also set to change the way they structure their funds so they will have longer-term money. Once they do this, they can play private equity at its own game.
“Shareholder activism will be the main thing in 2007 – people won’t know if they’ve got the deal. Getting a board recommendation is not enough; there will be much more uncertainty over whether the deal will get consummated or not,” adds the commentator.