The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Karen Kwok
LONDON, July 16 (Reuters Breakingviews) - A proposed 2.4 billion euro French software deal suggests buyout barons still have a few tricks in their bags, despite the impact of higher rates. Clayton Dubilier & Rice is offering to buy out Paris-listed Exclusive Networks EXN.PA, whose shares have struggled since its listing by private equity firm Permira. Feasting on initial public offering orphans could be a profitable trade – and one that gets repeated.
Exclusive Networks, which acts as a middleman between cybersecurity vendors like Palo Alto Networks PANW.O and customers like IBM IBM.N, had lost 10% of its value since its 2021 IPO price by March, when Reuters reported the possible buyout interest. The rout in tech stocks is one factor. Permira, the company founder and France’s Bpifrance's collective 75% stake doesn’t help as it creates a stock overhang that scares off other investors.
Permira has its own headaches. The buyout group is sitting on 38% of Dr Martens DOCS.L, whose value has slumped since its 2021 IPO, and recently pulled the listing of its Golden Goose sneaker chain. Exclusive Networks' thin liquidity, meanwhile, would usually imply a sale can only be done at a big discount.
Luckily Clayton Dubilier & Rice is helping out by offering 24 euros a share to take Exclusive Networks private. Permira will invest alongside CD&R, but will use the buyout to trim its stake, people familiar with the situation told Breakingviews, obtaining a partial exit at a 20% premium to the 2021 IPO price. Including debt, the offer values the French group at about 11 times the EBITDA analysts expect it to make this year, using estimates polled by LSEG. Rivals Arrow Electronics ARW.N and TD Synnex SNX.N on average trade at 8 times.
CD&R benefits, too. Analysts expect Exclusive Networks to increase EBITDA by roughly 7% annually through 2027. Using that growth rate and the same exit multiple, the company could be worth 3.4 billion euros in 2029, CD&R a relatively safe 15% internal rate of return. That’s according to a Breakingviews calculation assuming the owners use debt equivalent to 3 times EBITDA, with interest costs of 8%. The return may be higher as CD&R should be able to crank up Exclusive Networks’ margin and use it as springboard to buy other software companies.
Getting into bed with another private equity firm can be tricky: the two firms may have different investment horizons or strategies. But there are plenty of opportunities to snap up cheap companies listed by rivals. Many tech groups listed in Europe are trading at discounts to their IPO prices, such as Polish online retailer Allegro.eu ALEP.WA or investment platform Allfunds ALLFG.AS. Exclusive Networks' buyout may serve as a template for other helping hands.
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CONTEXT NEWS
French cybersecurity firm Exclusive Networks on July 9 said it has received a -binding offer of 24 euros a share from a group of investors led by Clayton Dubilier & Rice and Permira, valuing the group’s equity at 2.2 billion euros.
Exclusive Networks was listed in 2021 by Permira. The private equity firm still owns a 57% stake, according to LSEG data, alongside Bpifrance.
Exclusive Networks share price was 23.15 euros on July 12.
(Editing by Neil Unmack and Streisand Neto)
((For previous columns by the author, Reuters customers can click on KWOK/
karen.kwok@thomsonreuters.com))