Private equity firms pounce to take companies private

By Patturaja Murugaboopathy and Chibuike Oguh

(Reuters) - More private equity firms are taking companies private, as lower corporate valuations make it easier to lure businesses away from the stock market at bargain prices.

Private equity firms spent a record $226.5 billion on such transactions around the world in the first half of 2022, up 39% from the same time period last year, Dealogic data shows.

(GRAPHIC: Private-equity-backed delistlings globally - https://graphics.reuters.com/GLOBAL-MARKETS/lbvgnewzdpq/chart.png)

Private equity-backed transactions accounted for $117 billion of total U.S. delistings, up 72% from a year earlier.

In Europe, delisting transactions involving private equity firms nearly doubled to $78 billion, up from $40.7 billion last year. United Kingdom delistings fell 29% to $21 billion.

Delistings in Asia, excluding Japan, involving private equity firms fell sharply to $822 million from $4.5 billion last year. Deals in Japan, however, grew 32% to $6.2 billion from $4.7 billion a year ago.

(GRAPHIC: Global stock delistings - https://graphics.reuters.com/GLOBAL-MARKETS/mypmnljqnvr/chart.png)

Many public companies are currently trading at a discount to their underlying net asset values, creating an arbitrage opportunity for the private equity funds to deploy their massive unspent capital, said John Anderson, mergers and acquisition partner at Atlanta-based law firm King & Spalding LLP.

Companies are also facing headwinds - including rising labor costs amid a tight employment market, supply chain issues, inflation, and tougher macro economic environment - that make it difficult to meet or exceed short-term earnings expectations of investors, Anderson added.

"I think you have an alignment of incentives between the company side and the sponsor side," he said.

Major take-private deals by buyout firms include the $12.8 billion acquisition of real estate income trust American Campus (NYSE:ACC) Communities Inc by Blackstone (NYSE:BX) Inc and the $16.5 billion acquisition of software company Citrix Systems Inc (NASDAQ:CTXS) by affiliates of Elliott Management and Vista Equity Partners.

"If you're a company director facing an offer from a sponsor that's delivering meaningful premium to your current price, it's a question of taking that bird in hand versus trying to guess when the stock market would bounce back to historical levels," Anderson said.