Why do companies voluntarily delist? What to do if your peer does it?

In recent years we have seen a number of companies delist (or announce a delisting) from the Mexican markets (including Lala, IENOVA, Fortaleza, Pochteca, Aeromexico, Santander, and Sanborns, among others). All these companies had different reasons to delist their stocks, but given the lack of IPOs in the Mexican markets, these delistings may raise questions on whether it makes sense to investors to maintain their positions in other Mexican stocks where they might be caught in a delisting process that can put pressure to the stock (or even make them hold a completely illiquid position for a while).  

So, how should an IR navigate these questions? If one of your competitors announces it will delist, and your investors ask whether your company will do it too, we suggest you follow these steps:  

1. Understand why companies delist. Here are four of the most common reasons:  

• Costs of being publicly traded perceived as too high. Some companies may feel the costs of being publicly listed (i.e. all the regulations you must comply with, the increased scrutiny from investors, the pressure to see your stock price above certain level) are not being properly compensated by easier access to funding. They might have private investors that are interested in becoming a part of the company on the side. They might even see easier access to private debt.  
• Market valuation is too low. Some control groups may think the market is not fairly valuing its business and fail to see how this will change in the short term. These groups may see a good opportunity in buying back the free float, so if they have the money to do so, delisting may make financial sense in the short term.  
• M&A. Some companies delist as another company has offered to buy them (after following all the regulatory processes, including a tender offer for all listed stocks), or they are going to merge with another organization.  
• Simplifying corporate structure. This is especially true for multinationals or conglomerates where you can consolidate into one single listed entity (possibly in the most liquid market space, which may not be in Mexico).  

2. Understand the difference between your company’s situation, and that of your peer. While some trends affect all companies within an industry to a certain extent, the devil is in the details. Is your control group more patient with market volatility/valuations? Is your access to market funding easier? Are your growth plans different?  

3. Have a clear and consistent message. When something happens to one company, it is common to see investors digging around to see if it will happen to that company’s peers. If your company’s position, is you won’t delist from the stock exchange, then the message needs to be loud and clear. Repetition will likely be necessary, as will consistency between all the company’s spokespeople. We also recommend being very upfront about it (i.e. talk about it in your IR materials when it makes sense, including in your corporate presentation, quarterly script, among others).  

4. Remember turbulent times are when the IR efforts are most important. It is easier (and calmer) to share the investment thesis of a company that is smooth sailing, but when peers have problems that make investors nervous about a sector contagion the IR’s efforts are fundamental. Shoring up expectations in times like these is what will make a difference to your stock performance for months to come.  

5. Be flexible. If conditions change, and management decides the best route for the company needs to change too, adjust your narrative. It is always better to be transparent and perceived as trustworthy, than to stick to an older narrative and negatively surprise the market in the last minute.  

And as a bonus, fully understanding why companies list in the first place will give you additional talking points. Here are some of the main reasons:  

• Raising capital for future growth.  
• Equity gives more financial flexibility than debt.  
• Provide liquidity as well as an objective valuation to families of founding shareholders (generational changes may need this).  
• Some tax benefits to minority shareholders.  
• Facilitate M&A.  
• Costs are not material for a large company.  
• Supports institutionalization of companies.  

We understand capital markets in Mexico are not as open as in other times, and that might imply more difficult days for the IR community. We at Miranda IR are here to help if you need to hone your messaging or if you want to better understand how to be closer to investors.