| Opinion divided over trigger for restructuring |
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| The question was: ‘What could most likely trigger a wave of corporate restructuring in Irish second line stocks?’ |
ABN AMRO
Currently, many smaller and middle cap Irish stocks (market capitalisation < E1 billion) are undervalued. With fund managers increasingly moving away from those stocks, they represent good value for potential acquirers or management may seek to take the companies private if earnings performance is not recognised in the share price.
AIB Corporate Finance
Several Irish second line stocks are currently trading at quite undemanding multiples. Were these ratings to be sustained in the long run or indeed to fall further I feel we would witness significant corporate activity.
BDO Simpson Xavier
The apathy for mid market stocks continues and this is not good for the economy. We need to have a strong stock exchange but there seems to be a lack of new ideas from both the Government and the stock exchange as to how to revitalise the Dublin exchange. There is a need for some new tax incentive to encourage investments in the mid gaps.
CFM Capital
This has already begun with the recent MBOs in the print sector of both Clondalkin and Adare. The continued lack of investment and liquidity in these stocks will trigger further deals particular in the Food sector.
Davy Stockbrokers
In theory the valuation gap between the second liners and the larger stocks has widened in recent years. However although there have been some second liners taken out, in most cases the premium over the market price has been very high i.e. 50-60 per cent. Thus while they appear cheap the cost of taking them off the market is higher. Also management teams looking to take a company private by way of an MBO are generally obliged to pay more than what a strategic buyer might to avoid the perception of opportunism.
Ernst & Young
A hard landing for the Irish economy.
Goodbody Stockbrokers
One or all of the following factors could trigger a wave of corporate restructuring in Irish second line stocks:
• A further drop in ratings
• A slow down in economic activity
• Earnings disappointments
• A further reduction in interest rates.
ICC Bank
In Ireland, there has been some corporate restructuring in second liners. This has taken the form of either MBO activity or public to private activity (in the printing and property sectors). This is likely to be an on-going process.
KPMG
Irish mid-cap stocks have suffered from adverse investor sentiment over the past couple of years. Undoubtedly, one reason for this has been a move by fund managers to holding more large European stocks following the elimination of currency risk with the arrival of the euro. However, I also think that a contributing factor has been the spectacular returns that were available to investors up to March 2000 from the TMT sector. With the slide in share prices in the TMT sector in the last twelve months and continuing uncertainty, this could prompt a re-assessment of the relative value of the ‘old economy’ mid-cap stocks.
NCB Stockbrokers
It is surprising that there has not been more corporate restructuring in Irish second line stocks than has been seen.
In our view the critical factor now is time. The multiples for second line stocks, with some exceptions, remain weak and the outlook, with further reductions in institutional weightings to come through, is poor.’
PWC
Recent slight improvement in sentiment towards second line stocks has probably reduced the likelihood of an imminent wave of restructuring although I would expect a small number of trade bids in 2001. Additionally, there are good prospects for public to private deals in one or two cases where dominant shareholders no longer see the point of a stockmarket listing. |
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| Article appeared in the April 2001 issue.
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