Dechert recently published its 2023 Global Private Equity Outlook Survey, which surveyed 100 senior executives of PE firms with $1 billion or more in assets under management in the North American, EMEA and APAC markets. The survey includes a spotlight on each of the major global markets and addresses a range of topics relating to the current and anticipated market environment. These include the impact of higher interest rates on valuations, creative approaches to dealmaking, and fundraising challenges.
Given the sharp decline in stock prices over the past year, I was a bit surprised to learn that, when asked to rank how likely their firms were to engage in a particular transaction, respondents said that they were least likely to become involved a take private deal with a public company. This excerpt suggest that this may have a lot to do with the increasingly dysfunctional nature of the U.S. public markets:
Unexpectedly, take-privates are the least favored deal choice, with over half of respondents saying they are either not very likely to consider a public-to-private as an option (26%), or reservedly saying it would depend entirely on the specific deal (26%). Some of the largest buyouts in 2022 have involved publicly listed targets, such as Atlantia and Citrix. However, these deals are not for everyone. US publicly traded companies have grown larger in value and smaller in number over the decades.
A paper published on the Harvard Law School Forum on Corporate Governance found that, as of early 2017, the average market capitalization of a US-listed company was US$7.3 billon, the median being US$ 832m. For all but the largest fund managers, this puts swathes of the stock market off-limits for PE firms managing diversified fund portfolios. Therefore, although valuations have come down off their 2021 highs, making take-privates more attractive, this activity will be concentrated among the larger sponsors in a case of value over volume.
The type of transactions that respondents identified as being the most attractive to them highlight the desire of PE buyers to leverage their financial resources. For example, 75% of respondents said that their firms were highly likely to pursue partnerships with strategic buyers, 57% said they were highly likely to pursue club deals, and 50% said that GP led secondaries/continuation funds fell into the “highly likely” category.
– John Jenkins