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EQT/Suse: buyout group pulls IPO flop off the market on the cheap

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Swedish private equity firm EQT achieved the buy-low, sell-high goal of all investors when it floated German software company Suse in 2021. It could be about to repeat the same trick. Following a collapse in the share price, it is now offering to buy back the public stake cheaply.

Nuremberg-based Suse came to market trailing high hopes that its open-source Linux operating system would be a hit with enterprise software developers. But tough competition proved a glitch in the plan. Multiple guidance misses included a profit warning in May.

The company now has a new chief executive, Dirk-Peter van Leeuwen, formerly of rival Red Hat. If he can turn the business round, EQT would be buying back in near the bottom. But any revival will take time.

EQT originally acquired Suse from the UK’s Micro Focus in 2018 at an enterprise value of $2.5bn. It then floated the business at an EV of €6bn in 2021, or €30 per share. EQT still holds 79 per cent of the shares. It sold a stake for €1.1bn in 2021 which it will now buy back for just under €600mn — provided all shareholders take up the offer.

Including net debts, the offer values the company at about four times this year’s expected sales, about €3bn. That compares with 14 times sales at the initial public offering. The collapse in value follows a fall across the broader tech sector. Growth at IBM-owned Red Hat is also slowing, though it is expected to report double-digit growth this year. Both are up against free and open-source competitors such as Canonical’s Ubuntu.

Suse’s underperformance warrants the low price. Growth at the company slowed to a trickle in the second quarter, with revenues up by just 1 per cent year on year. While it expects mid-single-digit growth for the full year, the increase is a far cry from the double digits recorded when the company listed two years ago.

Public shareholders will wonder why they bothered investing in the first place. If Suse storms ahead when fully private, they should ask what was holding it back before.

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