In the realm of global finance, the private equity industry plays a significant role in shaping the dynamics of mergers and acquisitions. A notable trend emerging in recent years is the renewed interest of US private equity firms in taking UK publicly traded companies private. Given the current undervaluation of UK PLCs, this trend may not come as a surprise.
It is no secret that Brexit has been challenging and the effects of the related economic and political uncertainty have had an impact on UK businesses. Public listed companies are considered by some to be vulnerable as a result of investor caution leading to lower valuations. Combined with the geopolitical instability and the economic slowdown in the UK and across Europe, UK plc is in choppy waters. However, the volatility within the currency markets, particularly the devaluation of the British pound makes US investment in the UK much more attractive.
Private equity firms are renowned for their expertise in identifying undervalued assets and turning them into lucrative investments. In today's interconnected world, geographical limitations no longer apply. The UK is home to a number of publicly listed companies that might be considered as exhibiting strong growth potential. With the Financial Times (ft.com) reporting that US private equity firms are sitting on undrawn commitments of $3.7 trillion at the end of 2022, we anticipate that US sponsors will be increasingly active in UK take private transactions.
When US sponsors take UK public companies private, they are often able to bring a fresh perspective and operational expertise to the table. By delisting these companies, private equity players aim to unlock the inherent value that may have been overlooked or underestimated by the public market. This strategy also allows for leaner and more flexible decision-making and long-term value creation, which can benefit both the private equity investors and the acquired company. Price and earnings multiples across multiple sectors in the UK also remain depressed, promising investors a high reward on successful acquisitions.
For these reasons, now may be the perfect time for investors to consider UK take private transactions, and PLC boards may be less confident in rebutting approaches in the face of a downhill economic trajectory. To compound matters, interest rate increases are making traditional debt more expensive for some players in the market, potentially giving private equity firms with vast firepower an edge.
As US sponsors take undervalued UK public companies private, an approach that aligns interests, engages management teams, and nurtures talent can ensure the realization of untapped value and the establishment of mutually beneficial partnerships. By navigating the complexities of undervaluation, private equity firms have the potential to contribute positively to the growth and development of UK businesses in a rapidly changing global landscape.
Nigel Stacey, public M&A partner at Mishcon de Reya commented "take private deals are back in vogue for European and US private equity sponsors, with US interest in UK listed companies very much the height of fashion. We anticipate a big uptick in sponsor led UK take private activity from Q3 onwards."