Canadian auto parts maker ABC Technologies Holdings Inc. has new private equity owners only seven months after going public, yet remains a publicly traded stock, putting its public investors in a rare position.
At the time of its IPO in February, Toronto-based ABC was owned by private equity firm Cerberus Capital Management LP, and the public offering allowed Cerberus to start unloading some of its ownership stake. Two months later, however, another private equity firm, Apollo Global Management Inc., bought 51 per cent of the company in a deal that reduced Cerberus’s stake and left 20 per cent in the hands of public investors.
On Monday, ABC announced Cerberus has sold its remaining position to yet another private equity firm, Oaktree Capital Management LP. Oaktree is buying 26 per cent of the company for $9 per share, or 10 per cent below the $10 IPO price. The purchase price amounts to $125-million.
The latest sale puts ABC’s decision to go public in a new light. Companies backed by private equity firms tend to go public so that their backers can sell down their stakes to public investors over time, as seen after IPOs for the likes of Canada Goose and Dollarama. ABC, though, is now under the control of new private equity owners – and it will likely stay that way for some time because private equity funds tend to hold their investments for five to seven years. (Cerberus purchased ABC in 2016.)
The investors that own the publicly traded shares are now in an awkward position, collectively holding a 20-per-cent stake that provides little control of the company.
Oaktree declined to comment for this story. Apollo and Cerberus did not return requests for comment.
While it is common for a company that is considering an IPO to run a dual-track process that evaluates the merits of going public vis-à-vis selling to another private equity firm or to an industry competitor, it is rare to see a company go through the listing process only to reverse course after.
It is especially rare to see it happen when the subsequent private deals are at prices equal to, or worse than, the IPO price – especially after the IPO size was slashed by 60 per cent and its price was below the original marketing range, which is the case with ABC. Apollo bought its stake at $10 per share, and Oaktree is now buying at $9 per share. ABC closed at $8.50 on the TSX on Monday.
Yet the auto parts maker has seen its business struggle because of the pandemic. ABC is an established manufacturer with a history of profits, but lost US$26.1-million during fiscal 2020 because the pandemic erupted during its final quarter. And now it is dealing with two continuing problems: a decline in new vehicle production because of a global chip shortage, and a volatile supply chain for resins, which are key manufacturing inputs.
Originally known as ABC Group, the auto parts maker company was founded in 1974 by entrepreneur Mike Schmidt and specializes in thermoplastics for car manufacturers. Its product groups include interior systems (such as centre consoles and interior trim); exterior systems (such as spoilers and bumpers); and HVAC systems (such as defroster ducts and battery cooling ducts).
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Tim Kiladze