Public companies going private, while less frequent than private companies going public, is not unheard of. It happens for several reasons, including a business becoming lucrative enough that one entity aims to get full control, even if it means paying a much higher price. Whatever the reason, the investors, both current and prospective, have certain choices to make.
Nuvei (TSX: NVEI), the payment processing company, is going private, and its investors are facing this choice right now. Making the wrong choice may have negative consequences for their investment strategies.
Nuvei privatization
Earlier this month, Nuvei’s board and shareholders agreed to be acquired by Advent International, a U.S.-based equity firm offering to buy the company for US$34 per share. The reasons why Advent International has decided to buy the company are unclear or, more accurately, not shared by Advent International. However, it’s clear that the equity firm identified it as a promising prospect.
It has an impressive portfolio of currency/transaction-related services, including crypto-based transactions, which positions it quite strongly for the future when crypto transactions may become the norm.
As for Nuvei, the move makes sense because even though the company has been profitable for some time now, it carries a sizable amount of debt, and while its organic growth has been reasonable enough, the company was facing challenges in the current high-inflation environment.
Going private may offer the company more flexibility to face these challenges, especially with the equity firm’s connections and resources at its disposal.
What should investors do?
The first thing Nuvei investors should understand is to keep holding on to the stock until the deal goes through. When the stock is delisted from the market, investors will receive about $46.9 (based on the current USD to CAD conversion rates) per share, which is slightly higher than the current $44.3 per share. That may be reason enough to keep holding the stock until the very end.
However, it locks in your capital with minimal growth potential and a hard ceiling. So, if you think you can generate better returns in another stock, exiting the company at the current price makes sense, whether you turn in a profit or a loss. The same ideology may apply to investors considering investing in Nuvei now for predictable returns.
Foolish takeaway
One of the good things about being a Nuvei investor right now is that the future is highly predictable, which may help you make a decision.
Some investors, especially the ones who bought the stock before mid-2022, will incur a loss, even if they wait to sell at the final price (though they can mitigate the losses by waiting), while others may know the full extent of the profit they can make. This can make it easy for them to decide the fate of this tech stock in their portfolio.
