Why are so many newly floated companies being taken private?
Diagnosing the P2P2P phenomenon
Private equity have been taking stock market-listed companies private for many years.
But now public-to-private (P2P) deals have a special twist: many now involve companies that have recently gone public and have performed well post IPO. That is a sign of public market failure.
2023 has so far featured more take-private announcements than IPOs. According to Ernst & Young, take-privates have accounted for around 80 per cent of all private equity transactions so far this year and for the ten largest deals. This is the opposite of what you’d expect; after all, stock market indices are up in 2023 and flirting with all-time highs, and it has become more challenging for private equity funds to raise debt to fund their purchases.
And the announcements keep coming. On 15th June, Bain Capital, the private equity firm, made an all-cash bid for Swiss software management group SoftwareOne less than four years after its successful IPO. The offer has been rebuffed as too low, but that will probably not be the end of the story.
What’s particularly striking about the current vintage of take-private targets is that like SoftwareOne, many of them went public only recently. They have barely had time to mature as public companies, but the market has found their tannins unappetising.
This happens normally when a recently-IPO’d company blows up: for example, a high-tech company might float on a post-gravitational valuation of euphoria and hype. When the company misses forecasts by a country mile, the stock collapses to a fraction of its IPO price. Then a bidder comes along to buy it. The take-private is as much a mercy mission as it is an acquisition.
But that’s not the case with these recent “P2P2Ps” (private-to-public-to-private). Many of these companies went public and met expectations. Managements delivered on their promises. Investors had little cause for complaint. And yet the shares drifted down and then, like Samuel Coleridge’s Ancient Mariner, got stuck in the doldrums:
Day after day, day after day,We stuck, no breath no motion,As idle as a painted shipUpon a painted ocean
Take the example of OPDenergy, the Spanish renewable energy developer that floated in July last year. The company delivered on its targets, and yet its shares had fallen 16 per cent from IPO before infrastructure fund Antin announced a take-private this month — at a 46 per cent premium to spot (23 per cent premium to the IPO price). Never mind…..