The first ever take-private deal for a private equity investment trust is “bittersweet” for retail investors, according to industry commentators, after the board of Apax Global Alpha agreed terms with Ares Management.
The £794m cash offer, which is subject to shareholder approval, comes at an 18.8% premium to Apax Global Alpha’s closing share price.
The investment trust had been trading at a wide and persistent discount, meaning it was unable to able to commit further capital to its underlying portfolio of private equity funds.
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However, the deal represents a 17.1% discount to Apax Global Alpha’s net asset value (NAV). Investors will have the option to rollover their existing exposure into a new private fund.
QuotedData senior analyst Matthew Read said while the offer represents a first for the sector, a take-private deal seemed “inevitable” at some point, given the significant discounts that continue to persist within the listed private equity space.
“We have long argued that many of these discounts look overdone, particularly once you factor in that the NAVs of these funds tend to be conservatively valued – with assets often displaying decent valuation uplifts on disposal – and that, in some cases, these NAVs are cyclically depressed. In this instance, we would like to have seen an exit closer to asset value as the NAV calculation is recent and looks reasonable.”
“It is always disappointing to see a fund like Apax Global Alpha leave the listed market because of its discount,” Read added.
“Apax was established to enable investors to gain exposure to Apax funds without the constraints typically associated with being a limited partner, while providing the benefits of daily secondary market liquidity. Unfortunately, the new structure doesn’t allow for this.
“If investors opt for the rollover into the private fund, there is an opportunity to exit in June 2027 at a 10% discount to NAV. This falls by 2.5 percentage points per year until the discount on exit is zero in 2031, but a six-year wait to completely eradicate the discount feels excessive. Unfortunately, the alternative is exiting at a 17% discount today, but this means foregoing any potential NAV upside in the process.“
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Considering the premium to its share price, Wealth Club investment manager Nicholas Hyett said it’s “hard to be too bitter” about the deal. Wealth Club holds Apax within its portfolio service.
“Having said that, the 17.1% discount to NAV is sizeable, and means public investors are missing out on significant present as well as future value – especially given the strong start from Apax XI. In essence this deal acts as a cap on the upside to be had when backing out-of-favour investment trusts,” he said.
“The real blow though is that this diminishes the range of private asset investments available to retail investors still further. There’s never been a huge number of high-quality private equity managers with listed vehicles and losing Apax makes it more difficult than ever to participate in the impressive returns on offer in top tier private equity firms. For our portfolios, it’s a bittersweet moment.
“We see a short-term boost to performance, but miss out on the long term potential of Apax’s flagship funds.”
