Velan (TSX: VLN) had an interesting transaction reported last Wednesday:
Velan Inc. (TSX: VLN) (“Velan” or the “Company”) today announced that its controlling shareholder, Velan Holding Co. Ltd. (“Velan Holding”), the sole holder of the Company’s multiple voting shares, has agreed to sell its 15,566,567 multiple voting shares and one subordinate voting share (representing approximately 72.1% of the Company’s outstanding shares and 92.8% of its aggregate voting rights) to funds managed by Birch Hill Equity Partners Management Inc. (“Birch Hill”), at a price of C$13.10 per share, for aggregate gross proceeds of C$203,922,040.80 to Velan Holding and two other entities associated with shareholders of Velan Holding (the “VH Transaction”). Birch Hill is a leading Canadian investment partner with a 30-year track record of deploying patient capital and operational expertise to scale market leaders for long-term global growth.
Velan, for those that are unfamiliar with the company, are a producer of industrial parts. It has been selling valves for roughly 20-25% gross margins (aside from the Covid times) for time immemorial and is relatively unremarkable other than when the founding family wanted to get out.
The voting shares were privately held by the family and the public (lesser-voting ‘subordinate’ shares) are traded on the TSX.
Subordinate shareholders were clearly anticipating that such a sellout would include the entire company.
Upon the announcement, the stock traded from around $19/share to under $15, likely because any speculation that they would be taken out at a premium faded away, and the final negotiated price was well under what the market was trading at.
Financially the company has had better days – like a decade ago. It is understandable how a $19-20/share valuation would be lofty.
But the overall lesson here is that when it is well known a controlled company is going to go private, the minority shareholders might not necessarily get a good deal, or in this case, any deal at all.