Public to private deals (P2Ps) have remained a strong feature of the UK private equity deal market in 2018, with five take-private bids reaching an enterprise value of more than £1 billion already this year. Large P2Ps have already surpassed 2017 totals, which saw just one PE bid for a public company above the £1 billion mark. The increase in P2P deal values has also been coupled with greater P2P activity generally over the past couple of years. There were 18 P2Ps in 2016 and 14 in 2017, compared to just four P2Ps in 2013 and nine in 2014. Club deals have also become more common, demonstrated by Blackstone and CVC’s acquisition of payments company Paysafe last year.
Will the trend continue?
We believe that the steady flow of P2P transactions is likely to continue, driven in part by a scarcity of high-quality private assets for sale in the UK market. PE deal teams are seeking opportunities in public markets and are increasingly scouring these markets for value. Companies under siege from short sellers, or undervalued by shareholders, can result in under valuations, offering PE firms opportunities and offsetting the significant bid premium required on a public takeover deal.
In our view, this growth trend will continue, in part because PE firms have become more comfortable operating under the Takeover Code, seven years after substantial changes were introduced to create a more level playing field between bidders and targets in the wake of Kraft’s Cadbury takeover. PE firms are also more confident with the Takeover Panel — the body that issues and administers the Code — which is generally seen as a facilitator, rather than a blocker, of transactions. The Takeover Panel’s role in regulating public M&A transactions has received greater attention this year than in previous years, with Melrose’s successful hostile takeover of GKN and the first Takeover Panel-led auction process for more than a decade facilitating Comcast’s acquisition of Sky.
What should PE teams be aware of?
While P2Ps may offer excellent opportunities for PE firms, deal teams should be aware of the Takeover Panel’s increasing focus on a bidder’s intentions regarding the target’s business. Any plans for closures and lay-offs must be disclosed when a bidder announces its firm intention to make an offer. A bidder must also detail its intentions in respect of the location of the target’s headquarters, any research and development function, pension funds, and any redeployment of the target’s fixed assets. One year after completion of an acquisition, a bidder must confirm to the Panel whether or not it has taken the intended course of action, and publish that confirmation. PE firms must be mindful of potential reputational damage if post-offer intentions are not met.