Adevinta, better known in France with the Le Bon Coin or L’Argus brands, in Belgium with 2dehands/ 2ememain, in the Netherlands with Marktplaats, or in Germany with Mobile.de, was until recently a group listed on the Oslo Stock Exchange, operating various digital marketplaces in 14 countries in Europe, Latin America and North Africa. Adevinta's platforms connect buyers and sellers to facilitate transactions, from real estate to cars to consumer goods, cover 1 bn people and attract around 3bn average monthly visits.

In 2023, Adevinta achieved sales of €1,826m, up 11% on 2022, and operating income of €295m, up 31% on 2022. With debts of €1.8bn, i.e. 3 times EBITDA, net debt is not a cause for concern.

Spun off from Norwegian media group Schibsted, Adevinta went public in May 2019 at a value of €5.5bn, and on September 21, 2023 was listed at €9.5bn, or 15.3 times 2023 EBITDA.

The main shareholders were eBay (33%), which had contributed its German and Benelux assets to Adevinta, Schibsted (28%), and private equity fund Permira (11%). But eBay was clearly in a mood to sell its stake, and Schibsted, itself listed on the stock exchange for around €6bn, was under pressure, since its listed stake in Adevinta represented a good 40% of the latter, which exerted a significant discount on its sum of parts.

In short, a highly unstable shareholder situation, creating an overhang effect that is likely to weigh on the share price.

Taking advantage of a clear stock market underperformance over the past 2 years (-50% for the share price versus +5% for the media index), Permira put together a consortium of LBO funds (Blackstone, General Atlantic, TCV) and submitted an indicative offer in August 2023.

A leak to the press on September 21 led Adevinta to confirm that it had received an indicative, non-binding offer, without giving any financial details. Following this announcement, the share price jumped 27% to NOK 108.5.

On November 21, a binding offer at NOK 115 was announced, valuing Adevinta's invested capital at €14bn, or 18.9 times 2023 EBITDA, and representing a 52.6% premium on the average price for the 3 months prior to the press leak.

The debt portion of the offer is secured by a unitranche debt of €4.5bn (6.1 x EBITDA 2023), at 6-month Euribor + 5.75% as long as the net debt/EBITDA ratio remains above 5. This unitranche debt is entirely underwritten by institutional investors (CPPIB, GIC, Goldman Sachs AM, CDPQ) and debt funds (Blackstone, Apollo, Sixt Street Partners, Arcmont, Blue Owl, Oaktree, Oakhill, etc.).

This is the first lesson to be learned from this transaction. A €4.5bn debt package can be put together without any recourse to commercial banks or the bond market, and solely with private debt funds, in this case more than a dozen, which have thus completed the fourth largest LBO in Europe of all time (and the biggest in recent years).

So it's no small paradox that one of Europe's biggest LBOs was able to finance itself at a time when traditional banks had drastically reduced their acquisition financing capacities, leaving debt funds to take a significant share of the market from them.

And in this transaction, the private debt funds had to leave a share of the pie to some of their investors who now felt sufficiently equipped to invest in LBO debt directly, in co-investment, according to a pattern that has become classic for LBO financing equity.

It will not have escaped the attention of our attentive reader that Blackstone, a 35% shareholder in the controlling holding company of the Adevinta LBO (alongside Permira with 45%, General Atlantic with 14% and TCV with 6%), via the LBO funds it manages, is also on the debt side via the debt funds it also manages. In a way, this is reminiscent of the Deutsche Bank, Paribas or Mediobanca of yesteryear, lenders and shareholders to companies before prudential constraints led them to divest their proprietary investment activities. And also because, when a deal went wrong, conflicts of interest between the two roles usually emerged to the detriment of these double-hatted players, with other banks refusing to increase their commitments in the knowledge that the lender, also a shareholder, would have little appetite for going into bankruptcy.

In this case, Blackstone is a very small minority shareholder in Adevinta's debt, and this is money managed on behalf of different third parties (shares and debt) and not on its own account. If it cares about its reputation, which we can readily believe, it's in its best interest to stay in this situation, which prevents it from being as much a driving force on the debt side as he is on the equity side.

The second lesson to be learned from this transaction is the reaction of the independent directors, who have done a real job of defending minority shareholders in the face of a situation characterized by information asymmetry. Indeed, Permira has a seat on the Board of Directors, which clearly gives it a clear view of Adevinta's situation, enabling it to launch an IPO offer at a time when the share price is at its lowest, 60% down on the summer 2021 highs, and not yet incorporating the effects of recent investments.

Schibsted and eBay, also represented on the Board of Directors, decided to reinvest 40% and 50% of their shares respectively alongside the LBO funds, thus becoming 34% shareholders in the new Adevinta under LBO.

Having hired two investment banks to advise them, the Board of Directors, reduced to its 5 independent directors (due to a conflict of interest, the other directors representing the 3 major reinvesting shareholders) issued the following opinion:

Based on the above factors, the Board is unanimously of the view that:

the Company over time can generate greater value than what is reflected in the Cash Consideration. Accordingly, for those shareholders focusing on the long-term value potential of the Company the Board is not able to make a recommendation whether to accept the Offer;

however, as the Cash Consideration is within the range of what is fair, from a financial point of view, to the shareholders of the Company, and at a 52.6% premium to the Undisturbed Price, which is within the range of what has been offered in recent public offers in Norway, it may represent an attractive opportunity for shareholders who are looking to monetize their investment in the short term.

Consequently, the Board believes that the Company’s shareholders should have the opportunity to take their own individual view on the merits of the Offer.

The Board recommends that each shareholder of the Company carefully consider the Offer in light of the factors set out herein, such shareholder’s investment outlook, as well as other relevant information including the Offer Document. Each shareholder should evaluate independently whether or not to tender its Shares into the Offer, and consult its own financial, tax and legal advisors and make such other investigations concerning the Offer as it deems necessary in order to make an informed decision with respect to the Offer.

Even at low share prices, it's hard to resist a premium of over 50%, especially as the LBO funds had set the condition of obtaining at least 90% of shares and voting rights for a positive outcome to their offer, enabling a subsequent delisting to be implemented. In other words, the bar was set pretty high, and in the event of failure to meet it and a negative opinion on the offer, the independent directors could have been criticized for depriving some of the minority shareholders of a premium of over 50%. The independent directors therefore probably went as far as they could in making a recommendation to shareholders; advising them not to tender their shares to the offer seemed unrealistic with 2 fairness opinions from JP Morgan and Citigroup.

But the independent directors didn't just write, they also acted, and this is the third lesson to be learned from this operation.

Given that the major Adevinta shareholders could reinvest all (Permira) or part (eBay and Schibsted) of their Adevinta shares in the LBO, thus becoming shareholders, the directors obtained from the consortium that the minority shareholders holding 28% of the capital could also reinvest in the LBO, up to a maximum of 10% of the capital. The offer was then structured in 3 branches: a 100% cash branch at NOK 115 per Adevinta share, a 100% LBO holding company shares branch, and a 50% cash branch at NOK 115 and 50% remunerated in LBO holding company shares.

If requests for payment in LBO shares had exceeded 10% of Adevinta's share capital, i.e. around 6.8% of Adevinta's share capital, the shares tendered to the 100% share offer would have taken priority over those tendered to the 50% share offer.

This restriction was not necessary, as only 5% of the shares tendered to the offer were remunerated in LBO shares, i.e. around 1.6% of Adevinta's share capital.

As more than 90% of Adevinta's shares were tendered, Adevinta was delisted and the consortium acquired 100% of its shares.

Adevinta shareholders who opted to reinvest in LBO shares were grouped together in a first holding company, which holds 100% of Adevinta's capital. This first holding company is controlled by a second holding company, with eBay holding 20% and Schibsted 16%, and this second holding company is in turn 64% owned by a third holding company, which includes the members of the consortium (Permira, Blackstone, General Atlantic and TCV).

In our view, this option for shareholders wishing to reinvest alongside the LBO funds is an elegant way of reducing friction and conflicts of interest between shareholders in the event of an exit.

As the Adevinta example illustrates, this can only concern a small proportion of shareholders, as some investors cannot, by virtue of their purpose or status, invest in unlisted securities. Others are uncomfortable with a level of indebtedness far in excess of that usually observed for listed companies (in this case, from 3 times EBITDA 2023 to 6.1 times). Finally, others will be unwilling to give up the ability offered by the stock market to sell at any time, for the possibility of regaining liquidity only when the members of the consortium decide to sell control of Adevinta in a few years' time, thereby unwinding the LBO that has just been put in place.

In short, the reinvestment in shares branch can only concern professional investors, family offices, etc., who thus find the opportunity to participate in a direct LBO without investing in an LBO fund, with its advantages (diversification) and disadvantages (diversification for those who believe in Adevinta and don't want to have other exposures).

This technique has already been used on the Paris Bourse, for example when Nextstage was delisted in 2022, but on a much smaller scale, since Nextstage was worth €300m at the offer price. Almost all Nextstage's institutional and professional investors chose to reinvest in shares, while 10% of the capital opted for a cash exit.

Finally, L'Occitane en Provence, which wishes to go public (in Hong Kong), with a €1. bn buyout of the 27.4% not held by the majority shareholder, has just offered a similar arrangement: a 100% cash offer, or a 100% offer in shares of the unlisted controlling holding company, limited to 5% of the current capital of L'Occitane en Provence. Unlike reinvestment in an LBO, where liquidity occurs after a few years when the arrangement is unwound, reinvesting alongside a majority shareholder does not offer this possibility, unless an internal stock exchange is created between reinvested shareholders.

All too often, we read or hear this belief, this sophism, according to which the main aim and consequence of share buybacks is to boost the share prices of the companies that carry them out.

Nothing could be further from the truth, both in terms of cause and consequence, as illustrated by this graph for the last 10 years.

In addition to the S&P 500 Index, which tracks the share prices of the 500 largest market capitalizations in the United States, the S&P 500 Buyback Index is also published, covering the 100 S&P 500 groups that made the biggest share buybacks in the previous year.

If buying back shares were a way of boosting share prices, one might expect the S&P 500 Buyback index to outperform the S&P 500 index, but the exact opposite has been true over the past 10 years, as this month's chart illustrates:

While the S&P 500 Buyback has returned, dividends reinvested, 9% in actuarial terms over 10 years, the S&P 500 has returned 13%, and with less risk (standard deviation of daily returns 12% lower than that of the S&P 500 Buyback). Why did this happen?

Because the aim of share buybacks is not to boost share prices, but simply to return to the financial markets, which financed the company making the buyback, equity that has become surplus, at least transitively, to its needs[1].

[1] For more on this topic, see chapters 36 and 37 of the book in its 2022 edition.

With Simon Gueguen, lecturer-researcher at CY Cergy Paris University

While the 1980s and 90s were the heyday of IPOs, the last 25 years have seen the growing success of private equity, with companies being financed for a very long time by business angels and venture capital funds. As a result, many listed companies have decided to delist. In the United States, for the first time in 2016, more companies were delisted than floated on the stock market. Dell's delisting in 2014 was particularly noteworthy, with Michael Dell explaining that it was the result of a strategic choice to prioritize innovation and detach itself from the short-termist pressure of the markets.

This month's article[1] examines the reasons for and timing of voluntary delistings of the Dell type. For the first time (at least in a major journal), it proposes a theoretical model for delisting, and tests this model on a large international sample.

The idea of the model is to present delisting as a decision taken by the majority shareholder according to its own interests, and in some cases to the detriment of minority shareholders. This decision is the result of a trade off between the advantages for the majority shareholder of remaining listed (mainly the extraction of private profits to the detriment of minority shareholders) and the disadvantages (for example, the costs associated with disclosure obligations).

It should be noted that the authors' own construction of the model is not flattering for listed financing, since the company's performance argument always plays in favor of exit. Keeping the company listed is only justified here by agency problems[2]. This vision is of course simplistic, but it is the very principle of a model to simplify reality in an attempt to understand one aspect of it.

The article does not deal with the optimality of listing as such, but rather seeks to identify what triggers the decision to delist at any given moment. To this end, variables such as the percentage of majority shareholding, the degree of legal protection for minority shareholders, distribution policy, growth rate and company risk are taken into account. Also, in the model, delisting enables the majority shareholder to appropriate information on the company's prospects, while the obligations associated with listing make this knowledge common knowledge.

The model is used as the basis for a statistical study to measure the impact of these different factors on the decision to delist. The authors used a very large sample of over 26,000 companies listed in 26 different countries between 1990 and 2020. The international dimension of the sample means that the degree of legal protection for minority shareholders and the cost of disclosure obligations can be included in the analysis. Of these companies, 8,575 delist during the observation period. The authors focus on the 832 voluntary exits. In the vast majority of cases, delistings are not the result of a specific choice, but are the consequence of another event (merger, acquisition, bankruptcy, etc.). The analysis enables us to measure the importance of the various arguments in the decision to delist.

Statistically, the most decisive factor is the level of majority shareholding. On average, the majority shareholder holds 35% when the company is voluntarily delisted, compared with 31% for the sample as a whole. The difference may seem small, but given the size of the sample it is highly significant. The interpretation put forward by the authors is that majority shareholders can extract more private profit at the expense of minority shareholders when the latter hold a larger share of the capital, i.e. when the majority share is smaller. Similarly, all other things being equal, delistings are more frequent when regulations protect minority shareholders. These two observations are compatible with the idea that the majority shareholder may avoid or delay delistings due to agency problems. Also, delistings are slightly more frequent when growth prospects are strong.

The existence of a trade-off between the private benefits of majority shareholding and economic prospects, as modeled by the authors, is corroborated by observation, on a very large sample. However, it is important to remain cautious when interpreting the results, as the analysis is based on a model with strong assumptions, which presupposes the superiority of unlisted financing in promoting growth. However, the most factual element of this analysis is that factors associated with agency problems (holding rates, regulatory environment) are more decisive than economic factors (risk and growth prospects) when it comes to voluntary delisting.

But it won't keep you busy all summer!

BlackRock is the world's largest asset manager, with around $10,500bn in assets under management. Its share price has risen by 9,097% since its IPO in 1999.

Blackstone is the world's largest alternative asset manager, with $1,100bn in assets under management. Since its IPO in June 2007, its share price has risen by 317%.

Which has the highest market capitalization?

Despite having 10 times fewer assets under management, Blackstone's market capitalization in mid-July 2024 was greater than BlackRock's: $156bn versus $123bn.

Beyond the proximity of their names, the two groups are not in the same businesses, as illustrated by their net margin on assets under management: 0.046% for BlackRock versus 0.21% for Blackstone; or assets under management per 1,000 employees: $232bn for Blackstone and $553bn for BlackRock. Reflecting the original leverage, Blackstone's return on equity is 50% higher than BlackRock's: 21% versus 13%.

Finally, Blackstone's P/E (45) is more than double that of its peer (21).

This result, which may have come as a surprise to you, illustrates the success of Blackstone's all-round diversification strategy, like that of many of its peers, away from their original LBO business, to cover infrastructure, private debt, real estate and so on.

Finally, the similarity of the names is no coincidence, since Blackrock and Blackstone were a single company before 1995, Blackrock being a spin-off from Blackstone.

Regularly on the Vernimmen.com Facebook page^[1] we publish comments on financial news that we deem to be of interest, publish a question and its answer or quote of financial interest. Here are some of our recent comments.

Can the CEO of a CAC 40 group publicly make false inaccurate statements?_{(July 13th)}

Asked by a journalist from Investir whether the compensation (for any nationalisation of the motorways) could be zero, since the dividends received from the motorway concessions since 2022 cover the initial investment and its normal remuneration, Vinci's CEO replied on 29 June: "That's not true. There has always been a debt on our balance sheets relating to these motorway networks, and it amounts to more than €16 billion!

 The fact that there is still a debt on the balance sheet of motorway concessions does not mean that the shareholder Vinci has not recovered its investment, and much more, contrary to what its CEO claims.

 Take the example of Autoroutes du Sud de la France (ASF), which was listed on the stock exchange until 2006 and privatised in 2006. This is the main motorway concession held by Vinci, which acquired 23% of its capital before privatisation in 2006. At the time of the privatisation, Vinci acquired the remaining 77% of the capital in return for an investment of €8.8 billion. ASF's net debt at the end of 2005 was €7.6 billion, which is approximately the level it will be at the end of 2023: €7.2 billion.

In the meantime, Vinci has received dividends of €15.8 billion on the 77% of ASF it has acquired, giving an IRR of more than 8% on its 2006 investment. This is assuming no cash flow until the end of the concession in 2036, whereas it was €2.2 billion in 2023. Free cash flow after interest generated by ASF over the remaining 12 years will be used to repay net debt (€7.2bn), with the balance paid in dividends. Vinci's IRR will therefore be well in excess of 8%, and therefore well above the cost of capital for this business, which is around 5% over the period.

And if ASF's net debt, despite the generation of free cash flow from motorways, has hardly been reduced since 2005, it is because, in good financial management, Vinci has preferred to withdraw equity from this low-risk business in order to invest it in higher-risk activities that require it. In 2007, for example, ASF paid Vinci a dividend of €3.8 billion, well in excess of net profit, financed by an increase in net debt of €3.2 billion and leading to a fall in book equity from €3.8 billion to €0.5 billion.

 The fact that Vinci's CEO is using an argument that he knows to be false, er ... sorry, inaccurate, in response to a journalist, shows that he has run out of financial arguments to refute the reality of the extra profits made. Our calculations, based on ASF's annual reports since 2006, should therefore not be too ... inaccurate.