Jim Armitage: Black marks for the market and a plus for private equity

Blackstone and the Canada Pension Plan have bagged themselves a bargain with today’s Merlin takeover.

More’s the pity for the reputation of the London Stock Exchange.

Since this business floated in 2013, despite decent profits and a well-executed expansion programme, the shares have barely moved.

That’s frustrating, given that Merlin is an unsung British success story.

The truth that reflects so badly on the London market is that Merlin’s shares have been held back by the fact that it is investing for growth.

Its development of new brands and $500 million investment in new Legolands in New York and Korea are just the kind of long-term thinking the British economy needs. Yet the public markets have failed to understand and reward that.

Now, the returns on those investments in future years will go to private equity rather than stock market investors.

In fairness, you can’t blame all big City investors for failing to recognise long-term value. Institutions who backed Merlin’s float largely stuck with it. But, while they get a 40% premium to the IPO price in today’s bid, they won’t cherish the memory of Merlin. On top of the moribund valuation, the vagaries of the public market meant one or two broker notes would trigger unnerving share price swings on the back of barely any actual trading.

Where Merlin reflects badly on the public markets, it is a poster boy for private equity. Blackstone provided the capital it needed back in 2005 to grow the business, made a fortune when it floated, and is now coming back to its aid again. It will doubtless return Merlin to the market in a few years at double today’s valuation. to the sound of champagne corks popping over its Mayfair HQ. Again.