Total value of UK listed companies bought by private equity firms jumps from £2.3bn to £21.1bn in a year
Number of take private deals completed increased from seven to 25.
The total value of UK listed companies taken private by private equity firms increased from £2.3bn to £21.1bn in the last 12 months*, shows new research from accountancy and business advisory firm BDO LLP.
BDO’s research also shows the number of UK listed companies taken private by private equity firms increased from seven in 2018/19 to 25 in 2019/20*.
BDO says falls in share prices of some UK listed companies have made them a more attractive prospect to private equity houses. Concerns over Brexit and the impact of COVID-19 have depressed the valuations of UK listed companies versus their international comparators.
The private equity industry is seeing the hit to share prices from COVID-19 as an opportunity to pick up companies at more attractive valuations. BDO says their expectation is that private equity buyers will be able to support these businesses through any further disruption and be ready to build them up once the COVID-19 crisis finally passes.
BDO adds that management of listed companies have become more receptive to takeovers by private equity firms in recent years, for example, by allowing their advisers to solicit interest from potential private equity buyers or by taking informal approaches from private equity firms more seriously.
Private equity firms can offer more generous share based incentives to those directors that stay with the business than they might expect to get in the future if that company remained listed and subject to different corporate governance rules.
Taking a company private can also 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.
A private equity fund can also act as a one-stop shop to supply the business with all its additional funding, creating an opportunity for the company to strengthen the balance sheet or undertake additional M&A.
John Stephan, Partner and Head of Global M&A at BDO, says: “Private equity houses are taking UK listed companies private at an ever increasing rate. The number of deals completed this year is up by 250%, despite the uncertainty the COVID-19 crisis has caused.”
“PE funds have dominated deal activity whilst corporate buyers have been generally more cautious.”
“The combination of UK listed companies at attractive multiples and PE funds with large amounts of unspent cash that they need to invest means that the public to private trend is likely to continue at pace.”
BDO says listed companies in the technology, financial services and advanced engineering sectors appear to have been the most targeted by private equity firms in the last year. Six of the 25 businesses taken over were in the technology industry, with a further five belonging to the financial services sector.
Private equity houses based in the United States are becoming more active in taking over UK listed businesses. BDO says ten of the 25 deals completed last year were by private equity houses based in the United States, up from just four in 2018/19.
The three most recent UK listed companies to have been taken over by PE firms are HML Holdings, the property management company, HWSI Realisation Fund Limited, the fund manager, and Be Heard Group, the marketing agency.
*12 months to 30 September 2020
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