Brexit uncertainty sparks public to private takeover trend

Brexit uncertainty has sparked private equity fund interest in UK take-private transactions, new research shows.

Of the 42 firm offers for UK public companies last year 31 per cent were made by private equity, analysis by investment bank Jefferies shows.

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Public to private deals completed in 2018 include Silver Lake’s £2.2bn takeover of property website Zoopla’s parent company ZPG and Bain Capital’s £1.2bn acquisition of insurance firm Esure.

“Whilst UK public company acquisitions can be relatively complex, equity market dislocations and Brexit uncertainty have recently thrown up some interesting situations from a valuation perspective that private equity firms are currently running the rule over,” the Jefferies M&A Market Review said.

“The rating of the UK equity market as a whole has been dragged down by Brexit, even impacting companies who derive the majority of their earnings from overseas.

“The continued depressed level of sterling adds to this dislocation when viewed from the perspective of US dollar or Euro denominated funds.

“The longer Brexit uncertainty persists, the more vulnerable UK plcs will find themselves to private equity approaches as shareholders become accustomed to a “new normal” of depressed valuations and share prices.”

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The popularity of public to private deals has been rising over the last few years, with research from Latham & Watkins published last year showing there were 18 in 2016 and 14 in 2017 compared to four in 2013 and nine in 2014.

Another factor in the rise of take-private transactions is that private equity firms have become accustomed to the Takeover Code changes made in 2011, which aimed to address the perceived power imbalance between bidders and their targets following the hostile takeover of Cadbury by Kraft Foods.