Take-private deals: ‘Good time to strike while valuations are still low’

Craig McGlashan, editor of PE Hub Europe, has authored a Deep Dive into take-private deals, which we’re featuring today.

In addition, as we’ve reported previously, we’ve noticed a wave of PE firms setting up shop – or expanding their shops – in London. We’ve got another firm to add to the list.

Let’s dive in

Take-private deals are back in vogue for European private equity, with US interest in UK listed companies very much the height of fashion, Craig reports. But with many of the underlying conditions driving the trend having been in evidence for several months and the debt market still far from full strength, why the glut of deals now – and how are they being financed? And does the trend have further to run?

PE Hub Europe spoke to senior figures across the private equity industry to find out.

Here’s an excerpt from our story:

The large piles of dry powder in the hands of private equity firms, coupled with low public market valuations, had for several months been tipped to spark a rush take-private bids on European markets, particularly from those with dollars as that currency grew in strength.

But despite a few take-privates reaching the announced stage, it was only in April that private equity firms really started opened their wallets, even as the dollar’s dominance was slipping.

Firms were likely biding their time to see whether the collapse of Silicon Valley Bank (SVB) and takeover of Credit Suisse by its compatriot Swiss bank UBS, both in March, were idiosyncratic or the beginnings of a full-blown banking crisis, said several sources. When they decided it was the latter, they were ready to move – particularly in the UK, where economic data has been improving and the political outlook stabilising, said Michael J Preston, partner at law firm Cleary Gottlieb, who advises private equity sponsors on their investments.

“There’s now a consensus forming that it’s a good time to strike while valuations are still low and sterling is relatively low,” he said. “There’s a sense sterling might appreciate and these deals are getting more expensive to do. The mini-bank crisis wasn’t as bad as people thought. SVB wasn’t calamitous. Bidders have been hovering and all these things combined to shift the risk-reward needle. Then when one or two go, it gives confidence to the rest of the market.”

Snowball effect

The nature of these deals means such confidence is even more important than when manoeuvring for a private company, according to Christopher Field, co-head of law firm Dechert’s global private equity practice.

“One of the historic perceptions around take-privates is that they are much more complicated to execute with a more uncertain outcome because of the additional regulatory compliance and the greater risk of putting the company into play, which is never great if you’re a buyer,” he said. “But then as more take-privates are successfully executed, people decide it isn’t such a risk.  Over time that can create a snowball effect.”

As Preston suggested, sterling has been one of the better performing currencies over the last few months. It plunged in September following a mini-budget by the then UK government, nearing parity with the dollar, but has since climbed to be worth $1.25. But longer -term considerations have also hit valuations, added Field.

“The pound is becoming weaker in a very long-term trend,” he said. “There are quite a lot of companies listed in London that have an international business, so you get that arbitrage between the listed value in sterling and the underlying value. So that may drive stronger premiums. There is a perception that this is a good time, overall, to take advantage of those perceived cheap valuations. And determining the valuation isn’t as opaque as it would be on a private deal.”

Read Craig’s full story on pehubeurope.com for more on the trends, plus some data-packed charts.

London Town

Another sign of the increasingly cross-border nature of private equity is the number of US firms setting up European offices, with local knowledge becoming ever more vital in navigating the potential complications.

Back in March, PE Hub Europe’s Nina Lindholm rounded up several PE firms that opened or expanded new offices in London.

Blackstone, Thoma Bravo and One Rock Capital are among the firms strengthening their positions in London.

You can read that story here. 

And this week, the trend continues with Great Point Partners, a Greenwich, Connecticut-based private investment firm that’s opening an office in London.

With the move, Great Point aims to expand its ability to help growing healthcare companies reach transatlantic scale.

“Our London office will enable us to strengthen our partnerships with entrepreneurs to build global health care businesses,” said Jeffrey Jay, MD, founder and managing partner of GPP. “This expansion is a testament to our success in helping United States-based companies expand into European markets and vice versa.”

GPP pointed to its track record, saying the firm has already helped several healthcare companies reach transatlantic scale, including:

• MaSTherCell: A Belgium-based cell and gene therapy contract development and manufacturing organization that opened its first US facility.
• Softbox: A UK-based provider of passive temperature-controlled packaging solutions for the pharmaceutical, life science and cold chain logistics industries that expanded into the US via a large facility built in South Carolina.
• CorEvitas: A US-based provider of evidence solutions and data that completed an accretive acquisition in London and grew into related areas of UK electronic medical records, claims data, and patient experience studies.
• MLM Medical Labs: A Germany-based specialty central lab dedicated exclusively to clinical trials that completed two US tuck-in transactions.
• SteriPack: An Ireland-based contract manufacturing and value-added services provider that completed two US acquisitions.
• Clinical Supplies Management: A US-based pharmaceutical and services company that completed two transformational European acquisitions (in Belgium and Germany).

Noah Rhodes, managing director and head of private equity, will lead the development of the new office both from the US and in London.

And the firm has hired two London-based executives: David Slattery, senior vice president; and Isaac Kang, associate.

Rhodes said: “We believe that having an on-the-ground presence in Europe will benefit both our existing and prospective partners in accelerating their growth and expanding internationally, and also conveys our commitment to the European market.”