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Sunday, 21st April 2024
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Opinion divided over trigger for restructuring Back  
What could most likely trigger a wave of corporate restructuring in Irish second line stocks?
ABN AMRO

We believe that the poor technical situation for the small cap sector is unlikely to improve over the medium term. The patience of both investors and management is likely to wear thin as the year progresses. If the current low interest rate environment continues, we would expect further corporate activity within the Irish small cap sector this year, similar to the UK where the value of public to private deals increased by 26% yoy in Q3 1999. As such we believe that most of the smaller companies are potential targets for corporate activity based on a number of themes - a) sector consolidation e.g. recruitment, building materials, hotels and household products; b) suitability for an MBO and c) special situations - eg low valuations and high family shareholdings.

AIB Corporate Finance

In short, the continuation of current Irish stock market trends/ratings for another 12 months should on its own stimulate some corporate restructuring in the second line stocks on the Irish market.

The lack of interest of European institutions in second line stocks is a cause of continuing concern, not just for the companies involved, but also for all those smaller private Irish companies who may previously have looked to the stock market as a potential source of equity funding and as a source of liquidity for shareholders.

There has always been a degree of cyclicality of interest in Irish second line stocks. Traditionally fund managers sought superior returns from the second liners as the larger blue chips began to look comparatively expensive. However the advent of the Euro has caused a fundamental change in the landscape and it is difficult from where we are sitting to see what will trigger the interest of the European fund managers in the small scale Irish stocks again. Perhaps a continuation of the trend of acquisition by overseas companies or MBO’s among these companies will awaken investors to the value amongst these companies.

BDO Simpson Xavier Corporate Finance

Continued apathy from the stock market will inevitably trigger corporate restructuring. The Stock Exchange and the Government need to look at some way of improving investor sentiment, perhaps by way of tax breaks to encourage not only more traditional businesses to come to the market, but also for technology stocks to be listed in the Dublin market. The on-going demise of the Dublin Stock Exchange is not good for anyone.

CFI

Rationalisation of the rules regarding privatising companies. The transaction complexity is too severe to justify undertaking a lot of the transactions. One disgruntled shareholder has the capacity to frustrate and delay a transaction significantly. Most institutions will not commit to these transaction for this reason. Despite all the talk, privatisations will be a rarity.

Dolmen Corporate Finance

Confidence that values will increase

Deloitte Corporate Finance

It is inevitable that if stocks in the second tier continue to underperform, they will each be viewed as potential M&A targets. Given the amounts of private funds available, the Public to Private option may be availed of by a number of these companies similar to Clondalkin.

Ernst & Young

Further weakness in share price

Goodbody Corporate Finance

A further drop in ratings

Grant Thornton

Perception of a depression in share price arising from a lack of interest from institutional investors both nationally and internationally. Given the annual cost of PLC status it is quite easy to see the attraction of merging or indeed going private.

IBI Corporate Finance

We do not see any major wave of restructuring on the horizon. Individual MBO’s may occur.

Merrion Capital

Continuation of current poor performance of ISEQ plus strategic buying by trade/private investors of second liners.

NCB Corporate Finance

The anticipated wave of corporate restructuring among second line stocks has not taken place to any great extent to date. At the end of the day the companies shareholders will dictate what happens. There are plenty of exciting (if in some cases risky) investment opportunities out there and, in time, they will begin to demand change. Other drivers of change will include increased competition, European consolidation and technological developments.

PricewaterhouseCoopers

I don’t believe a wave of restructuring is imminent, although a few more MBOs are likely this year. Prolonged low valuations will eventually result in trade bids for the more focused second liners but many will continue to disappoint investors.

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