Private Equity Industry Targeting Listed Firms as Economy Revives

PE (private equity) firms globally, are desperately seeking investments into public markets as the economy begins to revive post lockdown. The virus spread led to a majority of UK-listed firms yearning for cash. The same is the case with US private equity firms.

They too are seeking opportunities to invest the available dry powder at their disposal, into publicly-traded companies as the economy starts to recover gradually. As per a study conducted by Private Equity International, the fundraised for Europe-specific buyouts has soared up off late, reaching a whopping $49.5 billion in the year 2019.

However, in 2020, just $2.69 billion got raised during the first quarter. In the near future, as the pandemic inches up to an end, top private equity firms stacked with dry powder are likely to get interested in the take-private deals. 2019 saw an all-new record for UK take-private deals, as per the data furnished by Pitchbook. The momentum of such deals contributed to 50% of the 2019’s record-high deal value stats.

Favourable Conditions for Take-Private Deals

The amalgamation of billions in dry powder, a struggling market, and the nearing Brexit deadline is a perfect recipe to ■■■■■■■ on take-private deals, by the professionals at private equity. Dominick Mondesir, an EMEA (Europe, the Middle East and Africa) PE analyst at Pitchbook, expects the business in the private equity industry to remain sound in the long term.

He further stated the reason for the same, which is, that general partners are seeking taking advantage of the disturbed markets, across both, AIM (Alternative Investment Market) public markets and the main market.

Teachings from the 2008 Great Recession

While many comparisons with the 2008 crisis have already been made, the best private equity firms out there are certainly considering the lessons learnt from 2008. This way they can at least minimise the losses if are not thriving under this pandemic. According to the head of PE at law firm Pinsent Masons, Mr Ed Stead – “I am seeing PE firms across the globe wanting to respond fast to the current COVID crisis, compared to the pace at which financial firms responded during the 2008 crisis.”

The latest example of PE firms deploying huge sums of money soon after the pandemic slowed down a little, is KKR (top 3 PE firm worldwide). It procured a buyout deal worth £4.2bn by purchasing Viridor (Pennon Group), a UK-based waste-management firm. In fact, private equity investment professionals at KKR have been the most active in the last couple of months to invest into listed firms, thereby deploying a whopping $12.7 billion in the said time frame, as reported by Bloomberg.

For Cautious Investors, Pipe Deals Can be a ■■■■■■■ Option

A pipe deal involves investments made by PE professionals in public equity, which is basically private investors buying shares of publicly-listed firms. Pipe deals are much popular among the US private equity firms, compared to UK counterparts. The US private equity industry will be undertaking 1,100 pipe deals worth USD 74.3 billion in 2020, as forecasted by PrivateRaise, a market research firm that analyses PIPEs (Private Investments in Public Equity).

Conclusion

Keeping that in mind, PE firms may like to target the favourable PIPE deals for some time until the pandemic fully comes to a halt, as such deals offer a much-secure middle ground. In the recent past, many UK funds have stated that while they are forced to invest into PIPE deals, it’s not to the likings of the investors. Although it’s not natural for PE firms to gravitate towards PIPE deals, the fact of the matter is that almost every company in these difficult times is in need of instant cash to support its overall operations. Remember, PIPE deals constitute extensive prospectus requisites, and restrict the discounts that can be provided.