Nets shareholders could unlock value via sale after disappointing post-IPO run
07 JUL 2017
- Private equity firms seen as most likely bidders
- Current take-out premium in stock welcomed by investors
Nets’ [CPH:NETS] shareholders could seize the opportunity to exit in case of a bid at the right price, after a disappointing run post listing, according to investors and a banker familiar with the company.
Private equity firms are seen to be circling the Danish digital payments provider, according to two sector bankers and the banker familiar. Its size makes Nets a bit of a stretch for strategic buyers in Europe, while its geographical focus makes it a less strategic match for US-based trade buyers, the first sector banker said.
On 3 July, Bloomberg News reported that US-based firm Hellman & Friedman had indicated its interest. The company then confirmed it had received approaches and would review them. Local press reports say that JPMorgan has been mandated to advise on takeover interest.
Owners Bain and Advent, alongside pension fund ATP which held 5% of the equity pre-IPO, only took Nets public in September last year at DKK 150 per share for a market capitalisation of DKK 30bn (EUR 4bn). Since then, the stock has traded consistently below the IPO price, falling as low as DKK 105.9 on 15 March.
Shares now trade near the IPO level at around DKK 148.3, which is a reasonable price for the company, according to a minority shareholder.
It is no secret that the stock hasn’t done well since the IPO, so some investors would welcome the opportunity to get out, said a second investor who was invested until at least 31 December 2016. However, he declined to disclose his current position.
Nobody likes exposure to a bad IPO, so it would be a relief for some holders to let go, an investor who recently sold down its minority stake in Nets, concurred.
There are still some frustrated owners who bought in more recently, who will want to sell at the IPO price or higher, he noted.
Whether or not shareholders are happy with the approaches very much depends on their perspective of the future potential for improvement, the second shareholder said. This potential is debated by analysts, with some predicting better performance in the future, he added.
The first shareholder said that he is rather equivocal about a potential sale and delisting, saying that “these things happen”. The fund has not changed its position in Nets as a result of the news and takes a pragmatic stance on a potential delisting.
If bidders come at a premium to the current share price, he would be happy with that. If it all comes to nothing, the take-out premium on the stock would likely stay on for a while, which also serves the shareholder.
Criticism of the IPO process
The turnaround on Nets from Bain and Advent was extremely fast, as they only bought Nets in March 2014 for DKK 17bn, the second investor said.
The owners have more time and patience to review their options, while having already made nice returns in only a few years’ time, he said.
At that time, the price was seen as very elevated as the sale process attracted many bidders, which drove up the price, he said. Digitalisation of payments developed faster than anticipated, creating a tailwind for fintech companies, he said.
The way the IPO was run drew criticism from the second and the former shareholder, however. Bookbuild was not well-run, with many hedge funds piled into the book, they said. The banks and management were seen as too greedy, the second shareholder added.
Negative press on extremely generous management incentive pay packages after the IPO has not helped the perception of the company, he added.
Banks will always make the company look good, “it’s the name of the game”, the first shareholder countered. The company has delivered on all of its IPO promises and more, he added.
A spokesperson for Nets said that they were looking at how firm the offers are, but declined to comment further on the process.
Private equity firms are seen to be circling the Danish digital payments provider, according to two sector bankers and the banker familiar. Its size makes Nets a bit of a stretch for strategic buyers in Europe, while its geographical focus makes it a less strategic match for US-based trade buyers, the first sector banker said.
On 3 July, Bloomberg News reported that US-based firm Hellman & Friedman had indicated its interest. The company then confirmed it had received approaches and would review them. Local press reports say that JPMorgan has been mandated to advise on takeover interest.
Owners Bain and Advent, alongside pension fund ATP which held 5% of the equity pre-IPO, only took Nets public in September last year at DKK 150 per share for a market capitalisation of DKK 30bn (EUR 4bn). Since then, the stock has traded consistently below the IPO price, falling as low as DKK 105.9 on 15 March.
Shares now trade near the IPO level at around DKK 148.3, which is a reasonable price for the company, according to a minority shareholder.
It is no secret that the stock hasn’t done well since the IPO, so some investors would welcome the opportunity to get out, said a second investor who was invested until at least 31 December 2016. However, he declined to disclose his current position.
Nobody likes exposure to a bad IPO, so it would be a relief for some holders to let go, an investor who recently sold down its minority stake in Nets, concurred.
There are still some frustrated owners who bought in more recently, who will want to sell at the IPO price or higher, he noted.
Whether or not shareholders are happy with the approaches very much depends on their perspective of the future potential for improvement, the second shareholder said. This potential is debated by analysts, with some predicting better performance in the future, he added.
The first shareholder said that he is rather equivocal about a potential sale and delisting, saying that “these things happen”. The fund has not changed its position in Nets as a result of the news and takes a pragmatic stance on a potential delisting.
If bidders come at a premium to the current share price, he would be happy with that. If it all comes to nothing, the take-out premium on the stock would likely stay on for a while, which also serves the shareholder.
Criticism of the IPO process
The turnaround on Nets from Bain and Advent was extremely fast, as they only bought Nets in March 2014 for DKK 17bn, the second investor said.
The owners have more time and patience to review their options, while having already made nice returns in only a few years’ time, he said.
At that time, the price was seen as very elevated as the sale process attracted many bidders, which drove up the price, he said. Digitalisation of payments developed faster than anticipated, creating a tailwind for fintech companies, he said.
The way the IPO was run drew criticism from the second and the former shareholder, however. Bookbuild was not well-run, with many hedge funds piled into the book, they said. The banks and management were seen as too greedy, the second shareholder added.
Negative press on extremely generous management incentive pay packages after the IPO has not helped the perception of the company, he added.
Banks will always make the company look good, “it’s the name of the game”, the first shareholder countered. The company has delivered on all of its IPO promises and more, he added.
A spokesperson for Nets said that they were looking at how firm the offers are, but declined to comment further on the process.