Camelot Joins Privatization Queue 柯莱特加入私有化队伍

Just a day after drug maker Simcere Pharmaceutical (NYSE: SCR) announced a privatization offer and rumors surfaced of a similar bid by online game operator The9 (Nasdaq: NCTY), yet another US-listed China firm has announced a new privatization bid. This time information technology services company Camelot Information Systems (NYSE: CIS) has announced the latest bid to go private, as a recent wave of de-listings suddenly accelerates with the impending arrival of spring.

With so many companies suddenly privatizing, the interesting question becomes: What’s next for these firms after many de-list? In most cases the privatizations are being led by private equity firms, which are known for usually holding their investments for 3-5 years before trying to sell them for big profits. So that means that we can probably expect to see most of these companies either re-list in Hong Kong or China during that timeframe, or more likely that we could see many of them sold to bigger rivals.

All of that said, let’s take a look at the latest news from Camelot, a US-listed former high flyer that has encountered management problems and a slowdown in its core banking business in the last 2 years. Those woes have helped to push Camelot’s shares to record lows in recent months as investors lost confidence in the company.

Its shares once traded as high as $25 shortly after its 2010 IPO on investor enthusiasm about China’s strong growth potential as an outsourcing market for IT services. But the stock was trading at just $1.50 before the company’s announcement of a plan to buy out its shares for $1.85 each, representing a 23 percent premium to the last close before the offer. (company announcement) Camelot shares jumped 13 percent to $1.69 after the news came out.

Camelot said the buy-out offer came from the company’s top managers, who are in talks with an unnamed financial institution on financing for the deal. Such a buy-out would have been much more difficult a couple of years ago, when investors valued Camelot at more than $1 billion. But the tumble in its share price means the company’s market capitalization now stands at just $75 million, making a deal much easier.

The privatization bid comes after Camelot’s 2 biggest US-listed rivals, HiSoft and VanceInfo, merged last year to become Pactera Technology (Nasdaq: PACT), China’s biggest overseas-listed IT services firm. (previous post) Camelot’s privatization bid comes just a day after Simcere said it had received its own similar offer, and after the rumors that The9 was seeking a similar deal.

Those offers would come as outdoor media specialist Focus Media (Nasdaq: FMCN) and hotel operator 7 Days (NYSE: SVN) work to close their own previously announced privatization bids. Other names that have already closed similar privatization bids include online entertainment firm Shanda Interactive, e-commerce firm and Grentech.

This privatization wave, fueled by depressed share prices for Chinese firms, could easily see many mid-cap companies leave the US market, with ones valued at $100 million or less the most likely targets. I would expect to see many of those same companies sold to larger rivals in the next few years. For example, we could easily see Camelot sold off to Pactera or another rival, and 7 Days could end up combining with a bigger name like Home Inns (Nasdaq: HMIN). That means we could continue to see a stream of new privatization offers for the rest of 2013, with some interesting company sales to follow over the next 2-3 years as private equity firms look to recoup their investments.

Bottom line: Camelot Information Systems’ new privatization bid reflects an accelerating trend for US-listed Chinese firms, with a wave of company sales likely to follow in the next 2-3 years.

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