(BFM Bourse) – IPOs are common, as are listing withdrawals. But this last operation is not irreversible. The return of companies to the market after leaving it for the first time exists, although the cases are rare. What are the causes of these stock market returns?
Like cats, companies can have multiple lives … in the financial markets. While IPOs are common, companies that return to the market after exiting the market for the first time are quite rare. These operations, rather unknown to the general public, are called “Public to Private to Public Again” or “P2P2P” in the language of Shakespeare. Such an operation obviously does not take place at the same time as the withdrawal. Typically, a few years pass between delisting and “re-listing” on the stock exchange.
Delisting should not be perceived as a sanction by observers. After a few years of being on the market, the investment funds or historical shareholders of the listed company become aware of the loss of interest in the listing, without the company’s viability and solidity being called into question.
The reasons for a delisting are several: fall in the share price with or without a connection to the company’s fundamentals, heavy or unsuitable regulations, the costs of a presence on the stock exchange too heavy to bear. Ignorance of or misunderstanding of the company’s business by investors or the impossibility of the entity to finance itself correctly on the market are the reasons for a delisting.
Living happily, living hidden
Once the company has returned to “anonymity”, the shareholders and/or management of the company will have free rein to pilot a restructuring or a strategic change. The molting phase can last several years. This will likely lead to an increase in the company’s indebtedness, especially to finance external or internal growth, talent recruitment and investments essential for the company’s repositioning, etc.
“When this step is successful, the company can find itself in a favorable situation, with results and performance superior to its listed comparables, making it (re)eligible for an IPO”, notes Thomas Hornus, partner at EuroLand Corporate. . For the specialist, the companies’ returns on the financial markets can therefore have significant advantages for the shareholders. This new status allows the company to confirm that it has reached a sufficient stage of maturity to return to investors with new ambitions or in markets different from those in which it was positioned before its initial public offering. This new life on the financial markets will be better negotiated by the management or shareholders of the company in question, “if you already know the status of a listed company, the pitfalls of the past can be avoided,” explains Thomas Hornus.
General Motors: the textbook case
Among these emblematic stock market returns, it’s hard to ignore General Motors. The former industrial flagship returned to the stock market in 2010, signing the largest IPO in US history at the time. This return to the floors of Wall Street came just over a year after its bailout by the US government. The Detroit group had accumulated nearly $90 billion in losses between 2005 and 2008, hit hard by the 2008 crisis. At the time, the giant was losing $100 million a day. Since the restructuring, it is a General Motors that is running at full speed. In mid-November, General Motors raised its estimates for free cash generation for 2022 and had a good medium-term outlook, especially with the expectation of profitability in electric vehicles in 2025.
Another example with the computer giant Dell, but for different reasons. The Texan manufacturer had decided to exit the stock market, weakened by declining PC sales due to competition from smartphones. This life away from the stock market spotlight will have lasted almost 5 years, since in December 2018 Dell returns to Wall Street more restructured than ever. Meanwhile, Dell offered itself VMware in 2016, a company specializing in the cloud, an area that is on the rise.
For its part, the Hilton hotel empire made a triumphant return to Wall Street in December 2013, six years after being acquired by investment fund Blackstone as part of a nearly $27 billion LBO.
Source: EuroLand Corporate
In France, a few (rare) companies have gone back and forth like Dell, General Motors or Hilton. We can cite Elior, which returned to the stock market in 2015 after being delisted by the Charterhouse and Checkers Capital funds in 2006. Labeyrie, the food industry heavyweight, for its part experienced a new stock market life from 2004 to 2009 in Reykjavik, Iceland, after 3 year’s listing (between 1999 and 2002) on the secondary market, the progenitor of Eurolist by Euronext. In 2016, the company even mentioned the idea of trying the stock market adventure again before putting that project on hold some time later.
A credible alternative to secondary LBOs
For Thomas Hornus, a P2P2P thus provides shareholders with “new liquidity and a solution for partial or total exit of the investment, especially if the effort throughout the company’s unlisted life has made it possible to reintroduce at a higher valuation than the company was delisted…” In the case of Elior, this return to the stock market has allowed the funds Charterhouse and Checkers Capital – which were behind the delisting of ‘Elior – to partially exit the capital in the collective catering specialist.
When it comes to Hilton, the return on investment has clearly paid off for the private equity giant. Once restructured and relisted, Blackstone will have recovered nearly $15 billion in total from divestitures made over time between 2013 and 2015. The fund and its co-investors had put $6.5 billion in equity on the table in the 2007 operation .
After 18 delistings in 2020, 22 in 2021 and 18 to date in 2022 on the regulated Euronext and Euronext Growth markets in Paris, Euroland Corporate believes that the relisting of restructured companies is now a real alternative to leveraging secondary buy-outs ( or LBO). Thus, this P2P2P movement may experience a new life over the next 3 to 5 years, “enabling the revitalization of the market by re-introducing restructured companies, which is likely to maximize interest in their IPO” concludes the specialist.
Sabrina Sadgui – ©2022 BFM Bourse