Traditional IPOs are not the only route by which new listings come to stock exchanges. In Finland as in other markets, demergers often account for some new stock exchange listings. The business strategy typically involves breaking a single business into components for focused operations.
“A demerger of an existing company is a kind of IPO and typically features large companies. In many cases demerged businesses are hidden gems that have not received the attention they deserve, and their stock market performance post listing is therefore generally good,” says Manne Airaksinen, head of Roschier’s Corporate Advisory practice.
A demerger allows companies to streamline, simplify and focus their portfolios Airaksinen says that in Finland companies that are newly-listed by way of IPOs tend to be smaller entities. Demergers on the other hand, often involve large corporations.
“For example, Caverion was big, with current market cap of 1.1 billion euros,” Airaksinen remarks, referring to the establishment of Caverion Corporation via a partial demerger of construction firm YIT's Building Services and Industrial Services operations.
According to Airaksinen, even the announcement of a demerger can generate benefits for shareholders of the company facing the demerger.
“In recent Finnish demergers, the upside is that when a company has announced a demerger, the share price of the collective entity has risen from between 5 and 10%. This offers a positive view of demergers,” the Helsinki-based partner adds.
Airaksinen explains that a demerger allows the market to value the demerged assets separately from the rest of the parent company. This in turn means that potential investors can focus exclusively on the demerged asset in which they are interested.
Furthermore he notes that demerged entities in Finland have done well post-listing, citing cases such as the demerger of YIT to create Caverion and the demerger of the engineering and automation firm Metso Corporation to form Valmet, a supplier of services for the pulp paper and energy industries.
The Helsinki Stock Exchange has seen at least one such listing each year, and Roschier has been involved in prominent transactions.
So far in 2015 one important case has already been announced: the proposed partial demerger of the wireless segment of the engineering company Elektrobit into a new entity, Bittium Corporation. Bittium will be listed on the Helsinki Stock Exchange at the end June 2015, when the demerger takes effect.