‘Plans formulated during the boom years have not so much been put on the back burner as ripped up altogether,’ believes Rishi Malliwal, a partner in the corporate team at law firm Sprecher Grier Halberstam.
Looking back at businesses that listed on the growth markets in the 2005/06 era, with grand visions of going on an acquisition spree and consolidating a sector, Malliwal sees many of them now realigning their plans and having to settle for much more realistic objectives.
For those now looking at leaving the capital markets and continuing as a private business, Malliwal says that one of the biggest challenges will be securing the backing of the large number of minority shareholders that the business is likely to have picked up during its time on the public market.
He explains that the AIM Rules, which require 75 per cent shareholder approval for a public-to-private transaction, can make it difficult to secure the backing needed to push a deal through. ‘For that body of minority shareholders, a lot of whom may have invested personal savings on the back of a stock tip, it is going to be a hard message to accept,’ Malliwal says.
Dealing with the disaffection of this ‘small army’ of private shareholders is a task that will have to be undertaken very sensitively, he adds. ‘If you send out a notice of a shareholder meeting at which you are going to be putting this resolution to shareholders, you can be fairly sure that you will get a pretty full turnout or proxy vote of people wanting to voice their opinion on these things,’ he explains.
A Fine Balance
The frustration for many, he says, is the lack of correlation between share price and real performance, with shares often greatly influenced by a bit of buy/sell activity.
There is a distinct tipping point, Malliwal says, where the benefits gained from being quoted are insufficient to justify the work and costs involved in maintaining a public listing.
‘If a company is making money and its share price is going up, they don’t mind paying the advisory fees, completing the reporting and jumping through hoops. But if that is not the case I think it can gnaw away at them, and they will begin to question quite strongly whether removing these hurdles will enable them to get to their objective quicker.’
For those businesses that are able to obtain shareholder backing, the benefits to leaving the capital markets are often related to costs and the time that leaving gives back to management.
Looking at companies that listed between 2003 and 2008, Malliwal says that many would now admit that they were probably not suited to the public markets. Some may not have had the right people on board, while others were operating in sectors or markets that have fallen out of favour. For such companies, the strain of maintaining the listing is now starting to show.
‘Directors of these companies attend investor roadshows and presentations, and deal with all of the regulatory framework that comes with being a listed company, a lot of which will be completely alien to them,’ Malliwal points out.
While public-to-private deals don’t come around too often, Malliwal says that he has seen more enquiries about such transactions in the past 12 months. He has also noticed an uptick in general M&A work that has crossed his desk. ‘I don’t know if it is a flash in the pan but it is keeping us busy at the moment.’
Rishi Malliwal, Partner at Sprecher Grier Halberstam