If there was any doubt that the bosses of quoted corporations are growing tired of intensifying scrutiny from investors and regulators, you need only look to private equity deals for proof.
More of corporate Britain is abandoning the stock market, with the number of UK listed companies being taken off the market by private equity firms swelling last year.
Research by BDO, the accountancy group, has found that the number of UK listed companies that were taken private has increased from five in 2020 to 19 last year.
The total value of these companies succumbing to bids from buyout firms jumped from £4 billion to £29.3 billion in the past 12 months.
They included the supermarket chain Morrisons, bought by Clayton, Dubilier and Rice; Ultra Electronics, acquired by Advent; and the AA, bought by Warburg Pincus and TowerBrook Capital Partners.
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Private equity firms had about $2.3 trillion committed by investors but not allocated at the end of last year, data from S&P, the ratings agency, shows. This was up from just under $2 trillion in December 2020.
BDO believes that a more consistent recovery of deal volumes could take place if stock market valuations remain under pressure. Over the past decade, the growing valuation gap between UK listed companies and their peers in the United States have made “take private” deals more attractive to US funds.
It added that the number of companies being taken private had jumped because listed companies were more receptive to bids from private equity.
John Stephan, who is a partner and head of global mergers and acquisitions at BDO, said: “Many UK listed company directors continue to be frustrated by the low valuations put on their shares.
“The reputation of private equity firms amongst FTSE directors has dramatically improved over the last 20 years, so going private no longer seems such an unusual move.”
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Stephan expects that the listed companies that will be targeted by private equity in the future will be those that have been swept up by the recent stock market sell-off, yet still have good underlying fundamentals and are less affected by macroeconomic and geopolitical events.
He said: “There is always an ongoing assessment among listed companies about whether they want to remain listed. If valuations don’t improve in the UK any time soon, there are likely to be some boards who may think, ‘Let’s do something that will crystallise value for our shareholders’.”
