H&M's Path to Privatization: Valuation Re-Rating or Liquidity Trap?

The retail sector is undergoing a quiet revolution. As public markets grapple with short-termism and volatility, private equity and family-controlled firms are increasingly opting for privatization to escape the constraints of quarterly earnings reports and activist investor pressures. H&M, the Swedish fast-fashion giant, now finds itself at the center of this trend. The Persson family, through their holding company Ramsbury Invest, has aggressively accumulated shares in H&M, now controlling 64% of the capital and 85% of voting rights. This strategic consolidation raises a critical question: Is H&M's potential delisting a calculated move toward long-term value creation—or a liquidity trap for minority shareholders?

Strategic Ownership Consolidation: A Playbook for Privatization

The Persson family's share-buying spree is no accident. Since 2016, they have spent over SEK 63 billion ($6.6 billion) to increase their stake from 35.5% to nearly 70% of the company's equity. This accumulation is funded by reinvesting dividends, creating a compounding cycle that accelerates their path to the 90% ownership threshold required to initiate a delisting. Analysts like Niklas Ekman of DNB Carnegie estimate that at the current pace, the family could reach this threshold by 2027.

This strategy mirrors broader trends in retail privatization. Private equity firms and family-controlled entities are increasingly favoring private ownership to streamline decision-making, prioritize long-term innovation, and avoid the scrutiny of public markets. For H&M, a delisting could enable investments in circular fashion, digital transformation, and supply-chain resilience—initiatives that require patience and capital. Karl-Johan Persson, the family's chairman, has openly criticized the “short-term profit focus” of public markets, suggesting a philosophical alignment with private ownership.

Financial and Governance Risks: A Double-Edged Sword

While privatization may offer strategic flexibility, it also introduces significant risks. H&M's financials tell a mixed story. In 2025, the company reported a 1% increase in local-currency sales but a contraction in operating margins to 10.4% from 11.9% in 2024. Its share price has fallen 9% year-to-date and is down 60% from its 2015 peak. The company's debt load is also concerning: SEK 73.28 billion in debt and a debt-to-equity ratio of 2.01, among the highest in the sector. A delisting would likely require the Persson family to raise approximately 70 billion SEK—likely through debt—to acquire the remaining 36% of shares. This could strain the company's balance sheet and increase leverage, potentially undermining operational flexibility.

Governance risks are equally pressing. A delisting would reduce transparency and erode minority shareholder rights. With the Persson family controlling 85% of voting rights, dissenting shareholders would have little say in corporate decisions. This concentration of power could lead to governance challenges, particularly if the family's long-term vision diverges from market expectations. Additionally, Germany's new Zweites Zukunftsfinanzierungsgesetz (ZuFinG II) introduces appraisal proceedings that could delay or inflate the cost of a buyout, further complicating the process.

Investment Case: Holding vs. Hedging

For investors, the potential delisting of H&M presents a dilemma. On one hand, a privatization could unlock value if the company successfully executes its long-term strategy. The Persson family's commitment to sustainability and digital innovation aligns with ESG-driven market trends, which could justify a valuation re-rating. Deutsche Bank analyst Adam Cochrane argues that a private H&M could streamline operations and invest in high-margin initiatives, potentially boosting profitability.

On the other hand, the risks of reduced liquidity and increased leverage cannot be ignored. A delisting would transform H&M's stock into an illiquid asset, making it difficult for minority shareholders to exit. The company's current valuation already reflects pessimism, with a 60% discount to its 2015 peak. If the Persson family initiates a buyout at this price, minority shareholders could face a forced sale at a significant undervaluation. Moreover, the high short interest (21% of free float) suggests widespread bearish sentiment, which could exacerbate downward pressure if a delisting triggers a short squeeze.

Strategic Recommendations for Investors

Given the uncertainty, investors should adopt a balanced approach. For those with a long-term horizon and conviction in H&M's strategic direction, holding the stock could be justified. The company's progress in digital transformation and sustainability initiatives offers a foundation for future growth. However, hedging is prudent. Options strategies, such as protective puts or short-term covered calls, can mitigate downside risk while preserving upside potential.

For risk-averse investors, diversifying exposure across the retail and private equity sectors is advisable. The broader trend of retail privatization suggests that other companies may follow H&M's path, offering alternative opportunities in private equity funds or ESG-focused portfolios. Additionally, monitoring the Persson family's ownership milestones and H&M's Q3 2025 financial results will provide critical insights into the likelihood of a delisting.

Conclusion: A Calculated Gamble

H&M's potential privatization is a calculated gamble. The Persson family's aggressive share accumulation reflects a strategic intent to align the company with long-term goals, but the financial and governance risks are substantial. For investors, the key lies in balancing optimism with caution. While a valuation re-rating is possible, the liquidity trap looms large. In a volatile retail sector, adaptability—and a clear understanding of the risks—will be the ultimate arbiters of success.