Taking a public company private has long been a calling card of the private equity industry. Though these deals tend to make up only 1-3% of PE buyouts annually, they are often the most widely talked about. Which would you rather read about: Michael Dell and PE firm Silver Lake Partners’ $25 billion takeover of Dell’s namesake in 2013, or Waveland Investments’ 2015 takeover of doodad Printing for just north of $18 million? Both interesting in their own right, but most people would likely choose the Dell deal.
Historically, PE firms have completed around half of all take-private buyouts relative to strategic acquirers; however, deal data sourced from the PitchBook Platform shows that, in recent years, PE shops have completed a decreasing portion of these deals.
The chart above shows that between 2011 and year-end 2014, PE-backed take-private deals decreased as a proportion of total public-to-private buyouts, compared to those completed by strategic buyers. This may be due to several factors. For one, PE firms have been increasingly looking to add-on acquisitions as a way to source new deal flow and have potentially become more hesitant to seek the takeover of an expensive public company. Stretched public valuations themselves may also be exacerbating this trend and although PE firms are able to afford these transactions, competition is steep. Further, public strategic buyers have seen their respective stock prices rise in the current market environment, and given that the acquirer’s stock is commonly used as currency in these deals, they are able to outbid their PE firm competitors.
Interestingly, this chart also shows an uptick in the proportion of PE-backed take-private deals thus far in 2015. U.S. private equity firms are sitting on nearly $535 billion of unspent capital, which will need to be deployed in the coming years. It seems that PE firms may be coming to the conclusion that they will need to put this money to work, and thus, avoiding big ticket take-private deals may not be sustainable for the industry moving forward. We’ll have to wait and see how this shakes out in the remainder of 2015 and beyond.