Daily Times

More private equity firms are taking companies private, as lower corporate valuations make it easier to lure businesses away from the stock market at bargain prices.

Private equity firms spent a record $226.5b on such transactions around the world in the first half of 2022, up 39pc from the same time period last year, Dealogic data shows. Private equity-backed transactions accounted for $117b of total US delistings, up 72pc from a year earlier. In Europe, delisting transactions involving private equity firms nearly doubled to $78b , up from $40.7b last year. United Kingdom delistings fell 29pc to $21b . Delistings in Asia, excluding Japan, involving private equity firms fell sharply to $822mfrom $4.5b last year. Deals in Japan, however, grew 32pc to $6.2b from $4.7b a year ago. Many public companies are currently trading at a discount to their underlying net asset values, creating an arbitrage opportunity for the private equity funds to deploy their massive unspent capital, said John Anderson, mergers and acquisition partner at Atlanta-based law firm King & Spalding LLP.

Companies are also facing headwinds – including rising labour costs amid a tight employment market, supply chain issues, inflation, and tougher macro-economic environment – that make it difficult to meet or exceed short-term earnings expectations of investors, Anderson added. “I think you have an alignment of incentives between the company side and the sponsor side,” he said. Major take-private deals by buyout firms include the $12.8b acquisition of real estate income trust American Campus Communities Inc by Blackstone Inc and the $16.5b acquisition of software company Citrix Systems Inc by affiliates of Elliott Management and Vista Equity Partners. “If you’re a company director facing an offer from a sponsor that’s delivering meaningful premium to your current price, it’s a question of taking that bird in hand versus trying to guess when the stock market would bounce back to historical levels,” Anderson said.