Candover Ends Sale Talks
The firm’s recent troubles signal more significant woes among listed private shops.
June 30, 2009
U.K.-based investment firm Candover Investments plc has ended its discussions with its would-be bidders, saying its recent actions have bolstered “the financial position of the company.”
The listed private equity firm launched a strategic review in March that many viewed as a step toward a sale of the entire company. Shortly thereafter, the firm terminated actively investing into its 2008 fund.
Candover now says its agreement earlier this month to sell its energy research business, Wood Mackenzie, has saved the company from the necessity of fire sale in the near term. U.K. private equity firm Charterhouse Capital’s £553 million ($913.9 million) purchase of Wood Mackenzie earned Candover about £36.2 million. Still, the firm’s prospects for survival are inextricably related to shareholder confidence in the listed company. This dilemma is one that several public private equity firms struggle with.
As listed equity firms have experienced anemic losses, shareholders’ reactions have served as a useful reminder of public shareholders’ low threshold of tolerance for short-term investment losses. Earlier this month, shareholders replaced the entire board of listed fund of funds Bramdean Alternatives. Meanwhile, Candover continues to search for an "alternative ownership structure" for its management arm, Candover Partners. Many posit the most probable scenario is an asset sale.
In speaking with Mergers & Acquisitions earlier this month, H. Hiter Harris III, co-founder and managing director of Harris Williams & Co., said the private equity model does not lend itself to meeting the short-term investment profile of public shareholders. “As a private equity company, you can say to your LPs, ‘The world has changed, and everything is very different now. Here’s what we’d like to do.’ And they can say, ‘That sounds good, let’s do that.’ Not so on the public market.”
When TSG Consumer Partners acquired a 30% stake in Glaceau VitaminWater in 2003, the equity firm’s immediate losses would have chased away public shareholders. However, when the San Francisco-based firm sold Glaceau to Tata for $677 million three years later, the critics were silenced.
Commenting on this exit, Brent Knudsen, founder of Partnership Capital Growth, told Mergers & Acquisitions, “[Public private equity] really is a bit of an oxymoron.”
Aside from the unique challenge of maneuvering a change in strategy without incurring a shareholder revolt, listed private equity firms are plagued by regulatory constraints that limit their ability to adapt quickly.
Blackstone Group raised $4.13 billion in its initial public offering in June 2007. As shares sunk to nearly one-tenth of the initial offering in March, at its lowest period, the fund was limited in its investment options. Though Blackstone isn’t purely a private equity business, firms that are positioned as pure-play private equity stand to suffer more significant losses.
In discussing the challenge of regulatory impediments, John E. Mack III, chairman and chief executive officer of Imperial Capital, said, “The public equity model just fundamentally doesn’t work; there are structural reasons that a firm cannot quickly morph to take advantage of an opportunity.”
At midday, Candover stock traded at $345 per share. As of press time, calls placed to Candover were not returned.
Find out more information about people mentioned in this article from our People Database:
For more information on related topics, visit the following:
