Is the great private equity raid on London over?
A predicted deals raid in London by private equity firms may have already fizzled out this year as dealmakers turn their attention to cheaper unlisted firms, new research has suggested.
In a survey of top dealmakers by investment bank Numis, which was itself picked off by Deutsche Bank earlier this year, some 71 per cent of dealmakers said they had shifted their focus toward private companies, a major swing from last year when 73 per cent of dealmakers said they had their eye on UK PLCs.
Analysts had been pricing in a wave of takeovers this year as dealmakers looked to capitalise on sluggish valuations in London and a weak pound.
However, the appetite for dealmaking has soured as interest rates ramp up the cost of financing deals and volatile markets play havoc with pricing expectation among firms.
Numis said today the decline in private equity’s appetite for public assets “reflects the growing perception that it is becoming harder to agree terms with boards and shareholders for public assets”.
“This execution challenge is similar in private markets, but with a broader opportunity set, sponsors have shifted their pipelines to private assets,” Numis added.
A failure to agree terms with bosses and shareholders has scuppered a number of deals this year. Buyout giant Apollo had a number of takeover bids rebuffed by shareholders in the first half of the year, including a £1.7bn swoop for energy engineering firm Wood Group and a separate bid for THG, now owner of Morning Wire
Foreign buyers have still bought a number of major London-listed firms, however. Swedish private equity giant EQT has snapped up vet pharmaceuticals firm Dechra; property investment vehicle Industrials REIT agreed to a takeover by the US investor Blackstone; and Hyve Group struck a deal with the US firm Providence Equity Partners.
PE professionals surveyed by Numis said that financial and industrial-related assets across both public and private markets were among the most active and competitive sectors, although consumer was seen to be the most active as dealmakers scoop up distressed firms on the cheap.
Numis’s head of M&A Stuart Ord said the survey results painted a complex picture of the market.
“There are still significant funds to deploy but there are material transaction execution headwinds to be overcome with limited prospect of near-term improvement identified making it more difficult to find and execute deals,” he said.
“We expect to see corporate bidders becoming relatively more active but remain confident that private equity will remain an important and significant component of UK M&A,” he added.