Last year’s surge in private-equity backed public-to-private (P2P) takeovers looks set to accelerate after lockdown, according to a new report from Addleshaw Goddard. Research by the corporate law firm suggests the effects of coronavirus will exacerbate the reasons behind the recent increase in P2Ps – leading to even more in the second half of 2020
To P2P or not P2P: Private Equity and Public Takeovers in the Aftermath of Covid-19, released today, has been compiled from a survey of leading mid-market UK private equity firms and their corporate finance advisers. It looks at the reasons for the 2019 resurgence in take-private activity to gauge how the market may react following the easing of lockdown measures.
The report identifies three key factors for P2P activity, being increased competition for private assets among PE houses, a lack of opportunity to acquire privately-held businesses, and the better value proposition provided by listed targets. These interlinked drivers have been exacerbated by the Covid-19 crisis and look set to remain a feature of the deal landscape.
Mike Hinchliffe, a partner at Addleshaw Goddard, says: “We can only anticipate these themes continuing. As the lockdown measures are eased and we start to return to something approaching normality, sellers holding private assets will want pricing to recover to pre-Covid-19 levels. There will need to be a period of established trading through the “new normal” for that pricing to settle – this means that the competition for high quality private assets will be even fiercer.”
Simon Wood, another partner and a former secretary to the Takeover Panel, adds: “Recent falls in ‘UK plc’ share prices mean that listed companies look even more attractive by comparison to private assets than in 2019. Private equity interest in the public markets is set to be a long term trend. If coronavirus has done anything, it has accelerated it.”
The report noted the main deterrents for mid-market private equity firms engaging in P2P were lack of certainty of outcome, complexity and cost, and a skills gap where PE houses were not familiar with the takeover process.
Wood adds: “These deterrents will remain after lockdown but they are all readily addressable. Increasingly, P2Ps provide better deal certainty compared to hotly-contested private auctions, so we expect this to become less of a deterrent. But as to the complexity and skills gap, these can be readily be resolved by appointing advisers who know the takeover process inside out.”
