When the board of Constellation Software put the company up for sale this spring, it sparked anger among some of the company's shareholders because they wanted to keep holding what has been a great performer. It looks as though they will get the chance to own the stock a while longer.
Rough markets have made a sale a tough prospect. Nobody's in much of a buying mood and the near-closure of high yield debt markets makes a private equity takeover, perhaps the most likely endgame, a tough deal right now, say people close to the situation.
Constellation has a funny ownership structure that's driving the sale process, and creating friction among various factions.
A private equity fund, Birch Hill, owns a big stake. A pension fund, OMERS, owns another big stake. The rest is in the hands of management, which hasn't sounded keen on the sale idea, and public shareholders.
The public shareholders who don't like the idea of Constellation being sold blame the private equity shareholders, saying that if they want cash and liquidity, selling the company is the wrong way to go about it.
But for private equity owners, selling the whole company gets them a control premium. Other options, such as selling into the public markets, likely mean taking a lower price.
Constellation is a great success, a software company assembled through myriad acquisitions. But because of that strategy, Constellation serves a wide range of customers. That, some argue, makes it a tough sell to a strategic buyer. The company isn't focused enough on any one niche.
Private equity is another story. The company's incredible cash flow makes it a debt servicing wonder. It's a big bite, with a market capitalization of more than $1.2-billion. A buyer could lever up the company to purchase it and pay down the debt in no time.
The trick at the moment is getting that debt. High yield markets have basically shut, with next to no high yield bonds coming to market in North America since Aug. 1.
Those that have had to make a foray into them have found themselves paying much higher rates than just a few months ago. That cuts into what buyers are willing to pay for a company that's financed with high-yield debt.
For that reason, until markets settle down, or dealmakers adjust to the new pricing, whichever comes first, look for Constellation to stay public.