The total value of UK listed companies taken private by private equity firms increased from £4bn to £29.3bn in the last 12 months.
- The number of deals has also increased to 19 in 2021 compared to just five in 2020
- Consistent recovery of deal volumes expected if stock market valuations come under further pressure
The total value of UK listed companies taken private by private equity firms increased from £4bn to £29.3bn in the last 12 months, shows research by accountancy and business advisory firm BDO LLP.
The research also shows the number of UK listed companies being taken private has increased from just five in 2020 to 19 in 2021.
While 2021 may prove a high watermark for ‘take private’ deals following a pandemic-shaped lull in 2020, BDO says a more consistent recovery of deal volumes could take place if stock market valuations remain under pressure, coupled with exacerbated investor uncertainty following the invasion of Ukraine.
BDO explains that the growing valuation gap between UK listed companies and their US peers in the last decade, for example, has made take private deals more attractive to US funds.
The finite of number of private companies, of size, that are ‘available’ for purchase means that PE firms are seeking listed opportunities as the private equity asset class continues to grow. BDO adds that listed companies are also becoming more receptive to bids from PE houses.
PE funds are sitting on record amounts of cash that they are under pressure from their investors to deploy. Data from S&P towards the end of 2021 showed that private equity firms globally have been sitting on a record $2.3tn in ‘dry powder’ or money that has been committed by investors but not allocated. This was up from just under $2tn in December 2020 and $1.6tn in December 2019.
John Stephan, Partner and Head of Global M&A at BDO, said: “Many UK listed company directors continue to be frustrated by the low valuations put on their shares. That makes them more receptive to takeovers from PE houses. The reputation of PE firms amongst FTSE directors has dramatically improved over the last 20 years, so going private no longer seems such an unusual move.
“Private equity firms can often also offer more generous share-based incentives to directors than they might expect if the company remained listed and subject to different corporate governance rules.”
It is often argued that taking a company private can cut the high costs that maintaining a public listing entails and free management from the pressure of short-term earnings targets or having to explain a volatile share performance to multiple institutional investors.
Adds John Stephan: “The most popular targets for PE houses will be the companies that have been swept up by the stock market sell-off, but still have good underlying fundamentals and are less affected by macroeconomic or geopolitical events.
“There is always an ongoing assessment among listed companies about whether they want to remain listed. If valuations don’t improve in the UK any time soon, there are likely to be some boards who may think, ‘let’s do something that will crystallise value for our shareholders’.”
